Income Millionaire's Closed-End, High Yield Trio

06/05/2017 2:52 am EST

Focus: FUNDS

Igor Greenwald

Chief Investment Strategist, MLP Profits

Income expert Igor Greenwald, is the editor of Investing Daily's newest dividend-focused advisory Income Millionaire; here, he looks at a trio of high-yielding closed-end funds.

The Eaton Vance Tax-Advantaged Dividend Income Fund (EVT) is a closed-end fund that invests primarily in blue-chip dividend paying U.S. stocks.

Top holdings include JPMorgan Chase (JPM), Wells Fargo (WFC), Johnson & Johnson (JNJ) and General Electric (GE), along with a ETF specializing in preferred stocks.

Like many closed end funds, EVT juices its dividend income and capital gains with a bit of leverage, in its case amounting to 22% of the portfolio’s $1.6 billion in net assets.

EVT pays a regular monthly distribution of 14.5 cents per share, which works out to $1.74 annualized, or 8.1% of the current price. That price is 3% below net asset value. NAV increased 11.6% last year and is up 4.5% so far in 2017. The expense ratio is 1.47%, which includes 0.29% in borrowing costs.

The Eaton Vance Tax-Advantaged Global Dividend Opportunities Fund (ETO) is very similar, except that it applies its 26% of leverage to a more diverse set of investments, including a 32% allocation to foreign stocks, and roughly 20% divvied up among preferred stocks and corporate bonds, investment grade as well as high yield.

The fund’s top recent holding, Alphabet (GOOGL) doesn’t even pay a dividend, but since it’s up 17% year-to-date no one is complaining, in all likelihood. Top overseas investments are Nippon Telephone and Telegraph (NTTYY), Switzerland-based Chubb (CB) and Hong Kong life insurer AIA Group (AAIGF).

ETO’s regular monthly distribution of 18 cents per share adds up to $2.16 annualized, or 9% of the current share price. The share price is now marginally above the net asset value. NAV is up 11% year-to-date while the share price has jumped 18%. The expense ratio is 1.71%, including 0.39% in interest expense.

The other high-yielding domestic closed-end fund in the portfolio is the PIMCO Dynamic Credit and Mortgage Income Fund (PCI). Mortgage-backed and asset-backed securities make up 67% of the portfolio, and leverage adds nearly 46% to the fund’s $3 billion in assets.

NAV increased 18% in 2016 and 7% so far in 2017, but the price rallied more, erasing a discount to NAV that stood at more than 9% a year ago.

PCI pays a regular monthly distribution of 16.4063 cents per share, or $1.97 annualized. It also distributed a special cash dividend of 63 cents per share in December.

In total, payouts over the past year amounted to 11.7% of the current price, or 8.8% based on the regular monthly dividend only. All that credit expertise doesn’t come cheap: the expense ratio is a very high 3.2%, including 1.16% in interest expense.

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