Breaking News
Ad-Free Version. Upgrade your experience. Save up to 40% More details

This 9.8% Dividend Could Bankroll Your Whole Retirement

By Contrarian Outlook (Michael Foster)Stock MarketsOct 11, 2021 05:05AM ET
This 9.8% Dividend Could Bankroll Your Whole Retirement
By Contrarian Outlook (Michael Foster)   |  Oct 11, 2021 05:05AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items

There’s an unusual shift unfolding in the labor market that we contrarians can tap for outsized dividends (I’m talking a near-10% yield here), plus price upside for years to come.

We’ll do it using a closed-end fund (CEF) that’s tethered itself to a trend everyone has missed—a trend that’s concealed behind a metric called the labor force participation rate, or LFPR. It may have a boring name, but that doesn’t stop the media from reporting on the LFPR. You’ve likely heard it pop up in the mainstream press from time to time.

It simply refers to the percentage of the population that’s actively working or looking for work. The bigger the number, in theory, the more productive a country is because it has more people to work and grow its economy.

With an LFPR of just 61.7% in the US, it sounds like we’re far from our productive peak. After all, today’s rate is down from just over 63% before the pandemic and behind the LFPRs of both China (around 68%) and the European Union (72.6%).

The US: A Productivity Laggard?
Labor Participation Rate
Labor Participation Rate

That, of course, would lead you to believe that our lower LFPR is a drag on corporate profits (and share prices). But jumping to that conclusion would be a mistake. To get at what’s really going on here, we need to look at the LFPR for people aged 25 to 54, the group that’s in their prime working years.

And their LFPR (shown in blue below) tells a much different story than the headline number.

Younger Workers Are Busy—and Getting Busier
Labor Participation Rate 25-44 Yrs
Labor Participation Rate 25-44 Yrs

With an 81.8% participation rate, these prime working-age Americans are very likely to be working or looking for work, and that number has recovered to its mid-2010s level after aggressively improving in recent months.

Economists expect it to go higher still, even if the broader LFPR is set to stay lower, as baby boomers retire. And that’s okay, because these highly productive people are still hard at work, and they’re pocketing fatter paychecks, too.

A CEF That Turns Rising Wages (for Workers) Into a 9.8% Dividend (for Us)

Of course, we all know that ongoing labor shortages are pushing workers to demand higher pay and better working conditions.

On the one hand, this is bad for corporate earnings—companies will have to share more of their profits with employees. On the other hand, it’s good for corporate revenue because more workers will make more money they can then spend on goods and services.

To play this trend, we want to buy companies that are valued more for their revenue than their earnings and do not rely on a lot of manual labor to produce their products.

There just happens to be a CEF that has a lot of those companies in its portfolio: the Liberty All Star Equity Closed Fund (NYSE:USA), payer of a 9.8% dividend today.

With a lot of tech companies that rely on computers and robots to do their work, such as PayPal (NASDAQ:PYPL), Amazon (NASDAQ:AMZN), Facebook (NASDAQ:FB),and Adobe (NASDAQ:ADBE), USA is nicely positioned to profit from our current labor market situation.

These companies, most notably Amazon, have been paying workers above-market rates for a while now and are increasing pay—and that’s okay, because investors care much more about Amazon’s revenue than its earnings.

And the management team running USA is proven, too: they’ve defied the conventional “wisdom” that actively managed funds can’t beat the SPDR® S&P 500 (NYSE:SPY) over the past decade:

Human Managers: 1, S&P 500 Index Fund: 0

USA Total Returns
USA Total Returns

Note also that the chart above shows both funds’ total returns, including dividends—and due to USA’s high yield, most of its return was in cash, rather than ephemeral price gains. And about that 9.8% dividend: it’s not only sky-high today, but it’s nearly tripled over that period, as well.

A 9.8% Dividend That Soars

USA Distribution Growth
USA Distribution Growth

As you can see above, USA’s dividend rises in a two-step-forward, one-step-back fashion. That’s actually a benefit for investors because USA tends to reduce its dividend slightly during periods of market weakness, so management can free up cash to grab stocks at a discount. That’s a smart strategy because the bargain stocks the fund buys boost its upside and our future income stream, letting USA raise its payout when the market gets back on its feet.

The result is an overall long-term rise in the dividend, as you can see from the chart above.

The only catch here is that USA trades at a 7.5% premium to net asset value (NAV, or the value of the stocks in its portfolio) as I write this. But the fund has seen premiums in the double digits as recently as June 25, when its premium broke over 13%, and a return to double-digits is certainly on the table as the fund continues to benefit from long-term shifts in the labor market.

But bear in mind also that USA’s premium dropped as low as 2% in August, so you can afford to wait with this one (as we’re currently doing in my CEF Insider service), put it on your watch list and pick it up when the next pullback drops its valuation to par (or below).

Whenever you buy, you’ll be nicely aligned with ongoing trends in the labor market while getting a huge dividend—maybe big enough to get you out of the labor market, too!

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."

This 9.8% Dividend Could Bankroll Your Whole Retirement

Related Articles

Fawad Razaqzada
Chart Of The Day: FTSE Breaks Out  By Fawad Razaqzada - Oct 15, 2021 2

This article was written exclusively for stocks have surged back higher this week, with the FTSE reaching a new high for the year. The index has not peaked...

This 9.8% Dividend Could Bankroll Your Whole Retirement

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email