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Closed-End Cash Cows

03/25/2005 12:00 am EST


Neil George

Editor, Profitable Investing

"The one lesson we’ve learned in the markets over the years: It’s hard to get into trouble if you’re receiving dividends," says Neil George, editor of Personal Finance. Here, the advisor adds two new closed-end income funds to his buy list of "Cash Cows."

"Our ‘Cash Cows’ are selected to provide investors with income. The first addition to our buy list is BlackRock Income Opportunity Trust (BNA NYSE), which trades at a discount of more than 7% to the value of its income-generating holdings. Its dividends are paid on a monthly basis, running at a consistent 7 cents per share, in addition to the re-occurring capital gains distributions. The company should continue to generate a 7.5% yield. The bulk of its assets are invested in North American-issued bonds with modest maturities. BlackRock's managers are bond market veterans and they’ve sidestepped numerous tough times. In fact, the worst return for the past ten years was a minor 1.9% loss. And during the positive years, management has consistently generated double-digit gains. The average for the past five years exceeded 12%. Buy up to net asset value at $12."

"Next, we’re adding another closed-end bond fund to diversify our holdings as well as insure steadier cash flows.  Scudder Multi-Market Income Trust (KMM NYSE) trades at a discount of nearly 3%. The trust, managed by an arm of Deutsche Investment Management, continues to pay a rising dividend, currently running at 6.5 cents per share monthly. That equates to a more than an 8% yield. Scudder invests in a collection of US and international bonds that generate higher income and capital appreciation. And like BlackRock management, the Deutsche team, led by Jan Faller, has an impressive track record of controlling losses while capitalizing on opportunities. The worst return in the past ten years was a modest 3.3% loss. As for gains, they’ve exceeded BlackRock’s best years in the hefty double-digits; the last five years generated an average return of more than 14%. Buy Scudder Multi-Market in small, consistent batches up to a 5% premium from its current NAV of $10."

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