Forbes picks GDV, KYN, MEGI - 2024 Dividend CEFs.
With US market at nosebleed valuations, can we still find value and yield?
Turning to astute investors’ favorite three-letter acronym. C-E-Fs.
Forbes global media have shared a handful of closed-end funds (CEFs), that are surprisingly getting no love from Wall Street.
This is perfect because there’s about dividends up to 14% and discounts between 10% & 15%.
In other words, these fat cash cows are trading for 85 to 90 cents on the dollar.
What is there not to like about them?
2nd Level Thinking.
In fact, renowned billionaire investor Howard Marks called this “second-level thinking.”
It’s looking past the consensus belief about an investment to map out a range of probabilities to locate value.
It is possible to find secure yields of 6% or more in today’s market – it just requires a second-level mindset.
Here They are…
(1) $Gabelli Dividend & Income Trust(GDV)$.
Distribution Rate: 5.8%
Discount to NAV: 15.0%
This is a top-rated CEF, whose management team includes legendary value investor Mario Gabelli.
Unlike a lot of CEFs that either deal in niche securities or put options strategies to work, GDV is pretty straightforward.
It’s a straight-up equity-income portfolio that uses a modest amount of leverage (12%) and best of all, management is not timid.
Unlike a lot of dividend funds that lean heavily toward stodgy value plays, Gabelli Dividend & Income has plenty of growth, with the likes of:
Microsoft (MSFT).
Nvidia (NVDA).
Alphabet (GOOGL) - newly minted dividend stock in its top 10 holdings.
*Important: Note that many of these stocks do not come close to meeting the yield requirements.
But GDV do, delivering a nearly 6% yield currently and payout is monthly as well.
This is a great fund that writer Brett Owens has previously flipped for a handsome profit and it could be gotten currently (with Mario’s expertise included) at $0.85 on the dollar.
GDV has a 52 week high of $23.91.
With its 16 Jul 2024 closing price of $23.86, there’s just a 0.2% upside.
With analysts forecasting a bumper year end high for S&P 500 to be at least 6,000, it implies that GDV’s current 52-week high might be smashed.
(2) $Kayne Anderson MLP Investment Company(KYN)$ or Kayne Anderson Energy Infrastructure Fund (KYN) - revised name.
Distribution Rate: 8.3%
Discount to NAV: 10.6%
This is a “go-to” energy CEF for investors who want the big yields of master limited partnerships (MLPs) without all the headaches.
KYN provides exposure to energy infrastructure stocks across North America—predominantly midstream operators with oil, natural gas, and liquefied natural gas (LNG) infrastructure.
It operations also includes utilities and renewable energy plays as well.
The beauty of these “toll taker” stocks that do not necessarily need high energy prices to make a buck—They just take a cut (charge) as energy flows through their assets.
Investors will want to avoid buying a MLP company stock because during tax filing, it will be a nightmare.
However, if investor buys KYN, tax filing is merely a straight forward Form 1099 instead.
The portfolio is small, 40 or so tickers, led by the likes of $MPLX LP(MPLX)$, Energy Transfer LP (ET) and Enterprise Products Partners LP (EPD).
These names provide outstanding income, that is on the upswing, with MLP distributions rebounding off the COVID bottom.
KYN - past 12 months performance
Energy sector strong performance in 2024, has resulted in an even stronger KYN stock, gaining +24.08% YTD. (see above)
The same +24% gain has taken some of the “shine” off KYN’s discount.
While it's still on sale for less than 90% of its value, that is not as big a discount compared to (example) 30 Oct 2023 when it was only $7.90 per share. (see above)
It looks to be a bit overpriced right now.
(3) $MainStay CBRE Global Infrastructure Megatrends Fund(MEGI)$.
Distribution Rate: 11.7%
Discount to NAV: 10.4%
This is a different type of infrastructure CEF.
One of the differences is geographic—while KYN invests across North America, MEGI invests across the world.
Another is its lifespan. MEGI is actually a “term” fund that has a 12-year limited term.
It will liquidate either on or around 15 Dec 2033.
However, the biggest difference is MEGI’s larger scope:
The fund is “focused on the investment megatrends of:
Decarbonization.
Digital transformation.
Asset modernization.
which are reshaping the demand for infrastructure assets and driving income & growth potential.
In terms of funds’ holdings composition, there are:
Pipeline stocks — Example $Enterprise Products Partners LP(EPD)$ and Pembina Pipeline (PBA). But
Clean energy stocks - Example $NextEra(NEE)$ and Atlantica Sustainable Infrastructure (AY),
Communications-infrastructure property owners.
Data center REITs.
Railway operators and satellite firms, even.
It’s a noble mandate, but MEGI has been cursed with lousy timing, with inception in October 2021 when US stocks prices were sky high and about to top.
It’s also a broad mandate—so much so that it’s difficult to recommend it for any one thematic reason.
Fact: Between that and its small size ($691 million market cap), writer Brett Owens hesitated to even recommend it.
Investment Strategy.
Instead, he is monitoring MEGI for especially deep discounts to take advantage of in Dividend Swing Trader.
Currently, MEGI is cheap at a roughly -10% discount.
It had traded at a discount as wide as -18%; within the past 52 weeks.
For now, hawk over it perhaps, waiting patiently for an opportunity to buy at a much better discount.
There is truth in Brett’s sharing.
Of the 3 CEFs “recommended”, only MEGI is still in the “red” based on its past 12 months performances.
His mapped-out strategy (see above) might just be what the doctors ordered !
My viewpoints: (mine only)
Of the 3 CEFs, I am inclined to do my homework around Gabelli Dividend & Income Trust (GDV).
This is based on my investment experience with Gabelli other fund - $Gabelli Equity Trust(GAB)$. (see below)
Bought into GAB in October 2023, just about when US market began its bull run.
Its growth has been modest and still a tad better than SGD fixed deposit.
At the end of the day, its better the devil you know — right!
Alternatively, I might monitor KYN also because I like the idea of diversifying into Energy Infrastructure, based on familiarity I guessed.
More on that in a separate post (perhaps).
When monitoring KYN, it will be based on full insight into its potential headwinds, that might just become a buy-in opportunity. (see below)
Looks like there’s a lot of sell down in recently.
Will need to try to find out why.
Before every purchase, my last evaluation criterion helps me to determine if its a mid or long term purchase.
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