The trade-war panic is in full retreat—and it’s left us three ridiculously cheap funds set to soar even higher than the market in the coming months.
Best of all, we’ll bag some very nice dividends from this trio: I’m talking outsized yields up to 7.4%!
Before I show them to you, let’s talk about why the market looks set to head higher.
Right now, the SPDR S&P 500 ETF (SPY (NYSE:SPY)) is up 18.3% for 2019. This sounds too good to last, but keep in mind that this jump started near the depths of the late 2018 correction—a low level.
That makes the year-to-date number misleading; a longer-term view shows signs of consistent and slow recovery from 2018’s major volatility:
A Steadying Market
There are a lot of reasons for this, but the two most important ones are good signs for stocks.
For one, US GDP growth is strong, up 3.1% in the first quarter, and second-quarter growth is forecast at a still-robust 1.9%, according to the Federal Reserve. That means the recession fears that were priced into stocks in 2018 were wrong—and stocks still need to rise to fully price in this current growth clip.
Speaking of the Fed, the market now expects the central bank to cut interest rates, and the Fed itself has said as much. Why? Because even with strong growth, inflation is stubbornly low, so there’s no reason to keep raising rates, as the Fed has already done over the last five years.
So if America’s economy is growing and interest rates are about to fall again, we should expect American stocks to benefit the most. But which will be the biggest winners?
Instead of picking them one by one, let’s look at three funds that not only choose stocks well, thanks to smart strategies, but also pay out above-average dividends to investors from the capital each fund earns.
Dividend Fund #1: Playing 2 Disrespected Sectors for Big Gains
The first fund playing this economic growth right is Source Capital (SOR), which has put a quarter of its assets in companies like Broadcom (NASDAQ:AVGO), United Technologies (NYSE:UTX) and American International Group (NYSE:AIG)—three stocks that alone account for 10% of SOR’s assets. Those holdings are up 24.5% since the start of the year, but we’ve only seen tech and financials begin to recover from their 2018 weakness—setting us up for more gains ahead.
Monster Gains for Source’s Wise Picks
More importantly, SOR trades cheap, which means you get these stocks at a discount. That’s because SOR is a closed-end fund (CEF), a type of fund that often trades at market prices below their net asset value (or NAV), another name for the liquidation value of a CEF’s portfolio.
And right now, SOR’s market price is 13.7% lower than its liquidation value, so you’re getting these stocks cheaper than if you got them through an index fund like the Invesco QQQ Trust (NASDAQ:QQQ), or if you bought them one by one.
Dividend Fund #2: A 6% Dividend From a CEF All-Star Team
There is a downside: SOR’s dividend yield is just 2.8%, which is low for a tech-heavy CEF. If you want more income and top-performing tech stocks, the BlackRock (NYSE:BLK) Science and Technology Trust (BST) might be for you. It yields 5.7%.
I’ve written about BST before—including last Thursday when I named it my favorite of the tech-focused CEFs. Just look at its total return versus QQQ:
Outperforming the Market—With Income
BST has a dividend yield over five times higher than that of QQQ and it’s still able to outperform the index fund by a huge and growing margin.
How does it do it?
The answer may surprise you: management. BST’s managers have consistently picked winning stocks that outrun the well-known stalwarts of the tech world.
What this means is that, beyond the FAANG stocks you’d expect (those account for 25% of BST’s portfolio), the fund’s managers have shrewdly picked and timed purchases in breakout names like top holdings Alibaba (NYSE:BABA), Salesforce.com (NYSE:CRM) and Tencent (0070).
That strong record usually comes at a price, though; thanks to its market-beating returns, BST has attracted a high valuation in the past and recently traded at a 9% premium to NAV. But today it’s trading at a rare 1.5% discount, which means the premium could very easily return in the coming months.
Dividend Fund #3: Greater Income, Greater Safety
If 5.7% still isn’t enough of a dividend yield, I have just the fund for you: the Eaton (NYSE:ETN) Vance Tax-Advantaged Dividend Income Fund (EVT), which trades at its NAV and pays a huge 7.4% dividend yield.
EVT has given investors a monster 29% total return over the last year, versus just 19% for the S&P 500, making it yet another market outperformer.
That’s not surprising; EVT’s biggest holdings are popular S&P 500 names like JPMorgan Chase (NYSE:JPM) and Johnson & Johnson (NYSE:JNJ). This fund is very balanced, with about 10% or less of its assets in sectors such as tech, industrials, healthcare, energy, utilities and real estate.
Its biggest exposure is to the financial sector, which is up 15.4% in 2019 and set to keep going higher thanks to the booming economy.
20 More Rock-Solid Dividends—Up to 10.5%—Waiting for You Here
Steering you toward safe—and growing—7%+ payouts is exactly what I do in my CEF Insider service.
And right now I’m ready to share my very latest high-yield picks with you: I’m talking about a fully stocked portfolio of 20 CEFs yielding 7.3% on average (with two throwing off monster payouts of 10% and up!).
This portfolio is the beating heart of CEF Insider—and you should NOT miss this special invitation: you get to “kick the tires” on all 18 funds in my portfolio with no obligation whatsoever!
The buys you’ll discover are poised to hand you 7% to 15% price upside in the next 12 months, along with their outsized dividends. That puts the total returns on many of these picks 20% and even more, thanks to the incredible discounts they’re trading at now.
Good luck finding a gain-and-income punch like that in your typical S&P 500 stock!
There’s more: because I’ve distilled my 4 very best CEF buys now into an exclusive Special Report you’ll also get FREE. These incredible high yielders (paying amazing 8.7% dividends, on average) are the “best of the best”—the funds I see as absolute musts for every investor’s retirement portfolio.
Disclosure: Brett Owens and Michael Foster are contrarian income investors who look for undervalued stocks/funds across the U.S. markets. Click here to learn how to profit from their strategies in the latest report, "7 Great Dividend Growth Stocks for a Secure Retirement."