{"id":13682,"date":"2023-05-25T12:08:25","date_gmt":"2023-05-25T16:08:25","guid":{"rendered":"https:\/\/ifintechworld.com\/investing\/this-11-dividend-is-impossibly-cheap\/"},"modified":"2023-05-25T12:08:26","modified_gmt":"2023-05-25T16:08:26","slug":"this-11-dividend-is-impossibly-cheap","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=13682","title":{"rendered":"This 11% Dividend Is Impossibly Cheap"},"content":{"rendered":"
\n

Vanilla energy bulls stare at XLE. So basic<\/em>.<\/p>\n

Meanwhile, we \u201csecond-level\u201d contrarians consider NRGX as a high-yield play on higher oil prices.<\/p>\n

What\u2019s the difference? Well, PIMCO Energy & Tactical Credit (NRGX)<\/strong> yields 6.1% while first-level favorite Energy Select Sector SPDR Fund (XLE) <\/strong>yields 4%.<\/p>\n

So we bank 50% more dividend<\/em> when we look past the popular ETF for a little-known CEF (closed-end fund).<\/p>\n

But wait, there\u2019s more. XLE always sells for fair value. It holds blue-chip producers like Exxon Mobil (XOM)<\/strong> and Chevron (CVX)<\/strong>. Fair enough. But we\u2019re paying $1 for a dollar in assets.<\/p>\n

That\u2019s OK<\/em>. But not exactly a dividend deal.<\/p>\n

NRGX, meanwhile, trades at an 18% discount<\/em> to its net asset value (NAV) as I write. For my fellow math geeks, that is just 82 cents on the dollar.<\/p>\n

<\/fbs-ad><\/p>\n

Why? Don\u2019t ask me, my friend. NRGX owns a blended basket of income-producing stocks and bonds that benefit from high energy prices. It\u2019s the same big-picture play as XLE.<\/p>\n

With a larger yield, and a cheaper price.<\/p>\n

As the energy bull market rolls along, energy CEFs in this sector could eventually flip to premiums<\/em>. Sounds crazy until we consider that many PIMCO funds trade for more than the value of their underlying assets.<\/p>\n

Discounted CEFs like NRGX provide unique dividend deals<\/em>. Unlike their mutual fund and ETF cousins, CEFs have fixed pools of shares. Which means they can trade at premiums and, most interestingly, discounts<\/em> to their net asset values (NAVs).<\/p>\n

When we scoop CEFs from the bargain bin, we win two ways:<\/p>\n

    \n
  1. We collect a fat dividend\u2026<\/li>\n
  2. While we wait for the discount window to narrow (because the price goes up).<\/li>\n<\/ol>\n

    Is NRGX the cheapest CEF today? Nah bro<\/em>. Believe it or not, it is only the fourth-biggest bargain on the board!<\/p>\n

    Our coupon-clipped hero Highland Income Fund (HFRO<\/strong>) takes the top spot, literally trades for dimes on the dollar. Get this: an 11% yield fetching a 38% discount<\/em> to its net asset value (NAV). Thirty-eight!<\/em><\/p>\n

    Why the Benjamin Graham bargain bin? Is HFRO poorly run? Anything but<\/em>. Manager Jim Dondero is a savvy income investor with a contrarian mindset.<\/p>\n

    It\u2019s simple. Jim runs a smaller fund that can\u2019t absorb big bucks. Which puts HFRO\u2019s price at the whims of individual investors who, in year two<\/em> of a bear market, are skittish to say the least.<\/p>\n

    I love what Jim is doing at HFRO. Years ago, he realized that meaningful income in public<\/em> investments was tough to come by. So, he pivoted his approach to focus on private<\/em> firms.<\/p>\n

    Basic investors don\u2019t know HFRO. Yet it\u2019s arguably the cheapest CEF on the planet! Its unheard-of 38% discount to NAV means shares sell for a giveaway 62 cents on the dollar.<\/p>\n

    I get it. CEFs like HFRO typically do not venture into private investments. But it\u2019s a savvy strategy practiced by a master. (We contrarians don\u2019t do \u201ctypical\u201d anyway!)<\/p>\n

    The big shops like BlackRock and Eaton Vance snare the best private credit deals, apply some leverage, and kick out a big dividend. Small fry like HFRO must fight over credit scraps.<\/p>\n

    HFRO\u2019s private company investment edge is paying (big) dividends. Since January 2020, HFRO\u2019s NAV has held steady. Which is really all we ask of a CEF. Especially during disasters like March 2020 and, well, all<\/em> of 2022.<\/p>\n

    Meanwhile, HFRO has dished its generous dividend every single month<\/em>. Dividends reduce NAV, so the stable NAV means HFRO\u2019s cash flow keeps on flowing.<\/p>\n

    This fund is still<\/em> dirt-cheap because vanilla investors (and \u201cfirst-level\u201d money managers) don\u2019t understand it. But just wait until the Fed reverses course and starts cutting rates! When that happens, HFRO could easily return 20% or more in a few months.<\/p>\n

    And GET THIS: If the fund\u2019s price pops by 20%, it will still<\/em> be heavily discounted!<\/p>\n

    Longtime readers may recall the time I scored an exclusive 51-minute interview with an HFRO executive. At the time, the fund was attempting to convert itself to a holding fund.<\/p>\n

    Management eventually decided against the conversion, because of opposition from investors who were in love with HFRO\u2019s dividend and wanted the fund to keep on trucking, paying them monthly.<\/p>\n

    Well, here we are on the other side of that financial drama: HFRO still<\/em> pays its monthly dividend, still<\/em> grows NAV, and trades for just 62 cents on the dollar!<\/em><\/p>\n

    Will the fund ever<\/em> get respect? Who knows and, for our selfish dividend motivations, who cares<\/em>? We\u2019ll keep collecting the 11%\u2014in month-sized pieces\u2014while HFRO\u2019s price grinds higher.<\/p>\n

    Brett Owens is chief investment strategist for <\/em>Contrarian Outlook<\/em>. For more great income ideas, get your free copy his latest special report: <\/em>Your Early Retirement Portfolio: Huge Dividends\u2014Every Month\u2014Forever.<\/p>\n

    Disclosure: none<\/em><\/p>\n<\/div>\n

    Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

    Vanilla energy bulls stare at XLE. So basic. Meanwhile, we \u201csecond-level\u201d contrarians consider NRGX as a high-yield play on higher oil prices. What\u2019s the difference? Well, PIMCO Energy & Tactical Credit (NRGX) yields 6.1% while first-level favorite Energy Select Sector SPDR Fund (XLE) yields 4%. So we bank 50% more dividend when we look past […]<\/p>\n","protected":false},"author":1,"featured_media":13683,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[239],"tags":[83],"class_list":["post-13682","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-investing","tag-featured"],"yoast_head":"\nThis 11% Dividend Is Impossibly Cheap | iFintechWorld<\/title>\n<meta name=\"description\" content=\"Vanilla energy bulls stare at XLE. So basic. Meanwhile, we \u201csecond-level\u201d contrarians consider NRGX as a high-yield play on higher oil prices. 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