Three High-Yield Investments To Sell Now

With my Dividend Hunter service, I provide a list of high-yield investments that I have deeply researched, and my analysis provides an attractive combination of current yield and dividend stability. As a high-yield stock expert, I often get asked questions about other stocks or investments that are not on my recommended list. I also keep up on what other high-yield analysts are saying or recommending.

One investment category that generates a lot of questions is closed-end funds (CEFs). At first glance, investors often think these are regular companies. Actually, a closed-end fund is an investment pool with shares that trade on the stock exchange. Investors are drawn to CEFs because many have double-digit yields, and most pay monthly dividends.

Unfortunately, with most closed-end funds, there are usually more negatives than positives when evaluating one for investment potential. Here are a few of the problems you could see.

  • The first is opaque communications from management on how a CEF is managed. There are not a lot of reporting requirements, and any information you find on a fund’s portfolio may be month’s old. I sometimes refer to the CEF universe as the swamp of managed investment products.
  • CEF shares can trade at a discount or premium to the net asset value (NAV). Fund sponsors do not redeem shares, so the only place to buy or sell is on the stock exchange. If you buy a fund trading at a premium, you are paying more than a dollar for a dollar’s worth of assets — not a good deal. A CEF trading at a deep discount can be a danger sign that the management has been making some bad investments.
  • Dividends classified as return-of-capital (ROC) are a big danger sign. Technically, return-of-capital are dividends/distributions that are not from earned income, such as dividends or interest. While there are types and circumstances where ROC is not destructive to a fund’s NAV, unless you know for sure where the ROC comes from, it’s a danger signal to a CEF’s long term viability.
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Disclaimer: The information contained in this article is neither an offer nor a recommendation to buy or sell any security, options on equities, or cryptocurrency. Investors Alley Corp. and its ...

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