Yes, You Can Retire On Dividends -- 2 Big Yields Up To 8.5%
by Rida Morwa
Seeking Alpa Feb. 01, 2025
Today, I want to look at two funds that you can invest in. If you were to invest $100,000, you would receive just over $7,500 annually from them. That's more than if you were to withdraw 4% every single year, and you don't even have to sell a single share!
Pick #1: SPE – Yield 8.5%
The Special Opportunities Fund (SPE) is a closed-end fund, CEF, that is overseen by activist investor Bulldog Investors LLP. Bulldog Investors specializes in being an activist investor, but unlike other types of activist investors, they specialize in leveraging the opportunities that exist within the CEF space. What this means is that through SPE, they will invest in other CEFs that are trading at wide discounts or have unfriendly policies towards common shareholders and pressure them by being a major investor through legal actions and potentially even threatening to take over the management of the fund to encourage a more shareholder-friendly outcome. Historically, SPE has been very successful in its endeavors to leverage and bully returns from other fund operators.
Unlike some CEFs, which have variable distributions every single quarter. SPE pays out a set percentage of its NAV - determined on a specific date - throughout the rest of the year.
Recently, we saw that SPE's NAV rose through 2024, and coincidentally, so did its distribution for 2025. SPE hiked its distribution by a strong 15%. Aside from returns via their distribution, SPE has been quietly buying back its own common shares, which trade hands at a healthy ~10% discount to NAV.
Opportunities remain all over the CEF space and investing in this fund allows us to leverage their activist skills and size to our benefit. We've seen that different CEF managers have raised distributions beyond sustainable levels in an attempt to reduce the discount that their funds are trading at or even opted to do tender offers and buybacks. Blackrock has been doing them on many of its funds, as we've covered in the past, and Nuveen hiked the distributions on a number of their municipal bond funds to try and shrink the discount that's present there. SPE specializes in finding opportunities like these, buying them at a discount, and getting out when the discount disappears after receiving strong returns.
You can provide them with some of your capital and enjoy a strong 8.5% yield going forward throughout this year.
Pick #2: BTO – Yield 6.9%
John Hancock Financial Opportunities Fund (BTO) is a CEF that focuses on investing in banks. Banking is a sector that naturally revolves around money, and interest rates have a number of impacts on the business. Banks find themselves on all sides of interest-rate transactions. They borrow money and pay interest, they pay interest on deposits, they lend money and receive interest on loans, they hold large amounts of U.S. Treasuries, which receive interest, and they use the overnight markets where the Fed sets its "target rate" to borrow and lend.
The bottom line is that changing interest rates has a myriad of impacts on banks' daily operations, both beneficial and negative.
Some of the negative impacts stole the limelight when Silicon Valley Bank failed in 2023, as the value of its U.S. Treasury holdings declined too far and sparked a run on the bank. The market panicked, selling off most banks. We didn't, noting that the issues were specific to a few banks and not widespread.
Ultimately, interest rate changes are always both a risk and an opportunity for banks. While the managers of some banks might make poor decisions, most find opportunities.
BTO is a fund that has invested in banks in the good times and through the toughest times through the Great Financial Crisis, with average annual returns of slightly over 10% since inception in 1994: Source
The firesale among banks is over as the panic over Silicon Valley Bank has subsided. However, we expect that banks will continue to produce solid results as interest rates stabilize. With more stability, banks will be able to get more aggressive with their growth, turning their attention from protecting their balance sheets to looking for growth opportunities. Additionally, there is the potential for deregulation and/or simplified regulations to provide a spark for the sector.
Hopefully, you joined us, buying into the fear in 2023. But if you missed it, don't feel like you missed out. Banks still have a great outlook, and you can gain exposure to banks with BTO.
Conclusion
BTO and SPE allow us to leverage opportunities found all over the market. BTO invests in financial institutions that are among the best companies at generating value for their shareholders from everyday interactions. SPE specializes in unlocking value from stagnant and overlooked funds with idle managers. By leveraging both of these funds, we're able to produce high levels of immediate income from our portfolio and generate returns in our income far exceeding traditional retirement expectations.
Many investors, as they approach their retirement, seemingly misunderstand that investing for income means that you're going to receive an income far exceeding what an investor who follows the standard 4% withdrawal rule would receive. While on paper, your portfolio may not climb in value as rapidly as the overall market, that's no longer the goal. The goal is to achieve a strong recurring income stream that provides you with a lot of money now to enjoy your retirement. Many investors get caught in this idea that they need to keep up with the Joneses or beat everyone else instead of meeting their own personal goals. If your goal is to always beat everyone else in the market, then you will miserably fail year after year, and you will be harming your mental health and well-being in the process. This is because there has not been any single manager who has consistently been able to do so over their entire lifespan. Instead, create a goal that meets your unique situation head-on and allows you to leverage the market as a tool; it will bring you more happiness.
Source: SeekingAlpha
No comments:
Post a Comment