“Is a million dollars enough to retire?” “
Paul Katzeff from Investor company Daily asked me earlier this month. He was particularly interested in well-paid ETFs that would generate enough dividends to fund a nice retirement.
For example, we discussed the Global Nasdaq X
, which sells covered calls on the Nasdaq index itself to create cash flow.
QYLD’s rolling yield is 11.8%, meaning that $ 1 million positions would have generated $ 118,000 in dividend income on their own. In addition, the principal also increased thanks to the price gains. The Nasdaq has been in tears since last year, helping QYLD achieve 21.2% total returns (including dividends) in the past twelve months.
As neat as this retreat piece was, it wasn’t the best thing to buy around this time last year. With seasonally low stocks in September and October, the real the payment part usually occurs in the closed funds space (CEF).
Much of the reason that CEEs are the ultimate retirement investment is due to their under-the-radar nature. These “Rodney Dangerfield” funds are not respected by large investors. As a result, they can (and often do) trade below their NAVs, which are the values of their underlying portfolios.
It’s as close as it gets to a “free meal” from quality income investments.
For example, a year ago Gabelli Dividend & Income (GDV) exchanged 15% below its NAV. This fund managed by legendary investor Mario Gabelli was selling for only $ 0.85 on the dollar. An investor paid 85 cents to buy a dollar of assets!
GDV is not doing anything extraordinary. Gabelli and his team carefully select high-quality dividend-paying stocks. The “benefit” we get by purchasing this FEC comes from our ability to purchase it at a reduced price.
When we talked about GDV in these pages a year ago (and added it to our Contrary income report portfolio), the fund gave us three ways to earn:
- First, GDV produced 7.3% fat,
- In addition, it traded at a 15% discount to its intrinsic value (NAV) and
- Its net asset value was likely to rise with the market rally (a play on the Federal Reserve’s prolific money printing).
GDV Flashback: three ways to profit
CIR readers will fondly recall that we also saw compelling value in the Eaton Vance Global Diversified Tax Managed Equity Fund (EXG) Around the same time. EXG is a CEF whose flavor is closer to QYLD. But better.
QYLD only writes call options on the Nasdaq index itself. It’s a simple strategy but, to be honest, a lazy strategy that leaves money on the table. Call premiums on a index do not live up to those paid by individual actions.
EXG goes the extra mile to buy high quality stocks like Amazon
Around the same time last year, EXG was shedding a hefty 10% while trading at a 12% discount to its net asset value. Like GDV, he presented us with a trio of profit opportunities:
Flashback EXG: three ways to profit
How did it play out in reality? More lucrative than IBD reported in his diary!
One million dollars divided between GDV and EXG reportedly returned $ 510,000 from our Oct. 20 issue of CIR. Now it’s how we retire in style.
These CEF opportunities only come up once or twice a year, so when they do, we need to be prepared.
Brett Owens is Chief Investment Strategist for Contrary perspectives. For more great income ideas, get your free copy of his latest special report: Your early retirement portfolio: 7% dividends every month forever.