{"id":9931,"date":"2023-05-17T10:13:14","date_gmt":"2023-05-17T14:13:14","guid":{"rendered":"https:\/\/ifintechworld.com\/markets\/this-10-dividend-knows-jay-powells-next-move\/"},"modified":"2023-05-17T10:13:15","modified_gmt":"2023-05-17T14:13:15","slug":"this-10-dividend-knows-jay-powells-next-move","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=9931","title":{"rendered":"This 10% Dividend Knows Jay Powell\u2019s Next Move"},"content":{"rendered":"
\n

Interest rates are topping out\u2014and it\u2019s finally <\/em>time for us contrarians to get greedy. We\u2019ll start with a group of funds throwing off double-digit yields<\/em> and trading at big discounts.<\/p>\n

In fact, I\u2019ll hand you a ticker that\u2019s throwing off a 10% dividend\u2014paid monthly\u2014<\/em>shortly. We\u2019re buying bonds again today because interest rates are topping. And when rates fall, bond prices rise. It really is that simple.<\/p>\n

To see what I\u2019m getting at, think back to last fall. Stocks and bonds were both hammered, putting a big dent in the idea that the vaunted 60\/40 portfolio\u2014a long-touted retirement mix of 60% stocks and 40% bonds\u2014was safe.<\/p>\n

That plunge in bond prices sent yields soaring\u2014<\/em>until they smacked into the 4% level last October. That was our buy signal, because every time bond prices zoomed higher over the preceding 15 years, the \u201c4% lid\u201d held strong. It did the same last year, sending bond yields lower (and prices higher).<\/p>\n

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

We played that<\/em> bond bounce in my Contrarian Income Report<\/em> advisory through two ETFs: the iBoxx $ Investment Grade Corporate Bond ETF (LQD
\n
\n LQD
\n <\/fbs-ticker>),<\/strong> which we picked up in the October issue, and the iShares 20+ Year Treasury Bond ETF (TLT
\n
\n TLT
\n <\/fbs-ticker>),<\/strong> our November buy.<\/p>\n

Boy, did these moves pay off:<\/p>\n

Fast-forward to today and the yield on the 10-year is around 3.4%. That\u2019s still below 4%, but no matter\u2014rates are topping yet again. Sure, the Fed is still making noises about another possible hike, but c\u2019mon, man.<\/em> There\u2019s a banking crisis going on, with PacWest Bancorp (PACW), <\/strong>the latest to be put on life support. Plus inflation is in retreat and, yes, we\u2019re looking at a recession, likely in just a few months.<\/p>\n

That means bond yields have further to fall. And our price upside is just getting going.<\/p>\n

The yield on the 2-year Treasury, which has a long record of predicting where the Fed will head next, agrees: it\u2019s called the top on this rate-hike cycle and sees rates heading lower<\/em> by a full percentage point.<\/p>\n

The 2-Year Knows the Fed\u2019s Next Move Long Before Powell Does<\/strong><\/p>\n

Lower rates = higher bond prices. Which is what\u2019s driving our \u201csecond shot\u201d at locking in high bond yields at a bargain. But what are we going to buy?<\/p>\n

TLT, our ETF play from back then, still looks good. And for once it actually pays: its posted yield is just 2.8%, but its 30-day SEC yield\u2014a truer measure\u2014comes in at 3.7%.<\/p>\n

But that\u2019s below the 4.1% SEC yield we got in the fall. Which is one reason why I recommend passing on bond ETFs and going with CEFs. Another? The bargains in CEF-land are simply too big to ignore.<\/p>\n

Consider the DoubleLine Income Solutions Fund (DLY),<\/strong> which yields a gaudy 10% now and sports a 7% discount to NAV. Given that this fund traded at a 4% discount in mid-January 2022, as this rate-hike cycle was about to kick off, I expect the current markdown to be chopped in half (or more) as rates top out and roll over.<\/p>\n

Closing CEF \u201cdiscount windows\u201d are one of our favorite ways to profit at Contrarian Income Report<\/em> because they give us a coupon on top of a coupon.<\/em> We get to buy a fund whose holdings are oversold and we get the CEF itself at a discount, too.<\/p>\n

The other thing we need to talk about is the edge that human managers have in the bond world. Here, hardworking pros with deep connections make a big difference because they get tipped off when hot new bond issues hit the market.<\/p>\n

Algorithm-driven ETFs just can\u2019t compete. And DLY\u2019s manager, none other than the \u201cBond God\u201d himself, Jeffrey Gundlach, is as connected as they come. Plus, DLY converts its portfolio returns into dividend cash it hands us in the form of that fat 10% monthly payout. (That\u2019s another nice benefit of corporate-bond CEFs, as 34 of the 36 or so out there pay every month.)<\/p>\n

And DLY\u2019s 10% payout is as steady as they come. Check out the steady beat of monthly dividends we\u2019ve seen since the fund launched in February 2020. DLY\u2019s stormy start in the early days of the virus let Gundlach pick up high-yield credit quality than would otherwise be available with 7%+ yields:<\/p>\n

Put it all together and the opportunity we have in front of us is clear. As is the fact that when it comes to corporate bonds, it pays\u2014in both dividends and upside\u2014to go with CEFs.<\/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":"

Interest rates are topping out\u2014and it\u2019s finally time for us contrarians to get greedy. We\u2019ll start with a group of funds throwing off double-digit yields and trading at big discounts. In fact, I\u2019ll hand you a ticker that\u2019s throwing off a 10% dividend\u2014paid monthly\u2014shortly. We\u2019re buying bonds again today because interest rates are topping. And […]<\/p>\n","protected":false},"author":1,"featured_media":9932,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[241],"tags":[83],"class_list":["post-9931","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-markets","tag-featured"],"yoast_head":"\nThis 10% Dividend Knows Jay Powell\u2019s Next Move | iFintechWorld<\/title>\n<meta name=\"description\" content=\"Interest rates are topping out\u2014and it\u2019s finally time for us contrarians to get greedy. 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