“Double Discount” at Gabelli Dividend & Income

10/21/2020 5:00 am EST

Focus: FUNDS

Brett Owens

Chief Investment Strategist, BNK Invest, Inc.

With the bull market still in effect, stocks are likely to outperform bonds. But we needn’t throw away our dividends in hopes of keeping up with the bull; we can employ a “double-discount” mechanism to buy shares for as little as $0.84 on the dollar, explains Brett Owens, editor of Contrarian Income Report

Gabelli Dividend & Income Trust (GDV) — managed by legendary value investor Mario Gabelli — is a top-notch CEF. Today, we have a rare opportunity to buy Mario’s portfolio for just 84 cents on the dollar (thanks to its 16% discount to net asset value, or NAV).

Remember, CEFs have fixed pools of shares, so they can (and do) trade higher and lower their NAVs, or “fair” values. As contrarians we can step in when they are temporarily out-of-favor, like after a pullback when liquidity is low, and buy them at generous discounts.

GDV holds blue-chip dividend payers and growers such as Mastercard (MA), Microsoft (MSFT) and Honeywell (HON). These stocks are already cheaper than they were this time last month, and with GDV, we have an opportunity to purchase them for another 16% off.

These high-quality stocks wouldn’t normally qualify for our model portfolio because everyone in the world knows they are great shares to own.

Even though these companies are constantly raising their dividends, constant demand for their shares keeps their prices high (and current yields low). So, they never meet our current yield requirement.

Gabelli Dividend & Income Trust gives us a way to have our dividend and enjoy some additional upside in these high-quality dividend shares. The fund pays a monthly dividend that adds up to a sweet 7.3% annual yield. 

Over the last decade, Gabelli Dividend & Income Trust has delivered total returns of 152%, mostly in the form of its monthly dividends. In the short run it does tend to trade with the broader market.

Right now that’s exactly what we want, with stock prices gaining their footing and preparing for a money-fueled run into 2021. Action to Take: Buy Gabelli Dividend & Income up to $19.

Subscribe to Contrarian Income Report here…

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