Income Funds that Rise Above a Low-Yield World

Given today's historically low yields, it has become increasingly challenging to generate reliable income. Several MoneyShow.com contributors feel this is an opportune time to consider specialized funds and ETFs that offer diversification and skilled management. Harry Domash, Dividend Detective Here is a suggestion for a portfolio of four closed-end funds that will pay you monthly dividends equating to 8% to 10% dividend yields. AllianzGI Diversified Income & Convertible holds a mix of stocks, corporate bonds, some convertible into equity, and preferred stocks. The fund returned (dividends plus capital gains) 10% over the past 12 months and averaged 13% annually over the past three-years. It pays an 8.7% dividend yield. Tekla World Healthcare holds healthcare related equity and debt securities. The fund returned 28% over the past 12 months and averaged 11% annually over three years, and offers a 9.6% dividend yield. Calamos Strategic Total Return holds mostly U.S.-based stocks, convertible securities and high-yield corporate bonds. The fund returned 9% over 12 months and averaged 10% annually over three years, and now offers an 8.9% yield. Calamos Convertible & High Income holds a mix of convertible (to stocks) bonds and non-convertible below investment grade bonds. The fund returned 15% over 12-months and averaged 8% annually over three years, 9.1% yield. As always, historical performance doesn't predict the future. Do your own research. The more you know about your funds, the better your results. Michael Foster, Contrarian Outlook The so-called FAANG stocks are the darlings of the tech world. But you can be forgiven for not looking to the big-name tech stocks for high dividends. Just look at this rogue's gallery of pathetic payouts: Apple has a dividend yield of 0.9%, while Facebook , Amazon , Netflix and Alphabet each yield zero. They're no place for retirees, or anyone else on the hunt for dividends. Luckily for the folks who hold these stocks, which make up about 17% of the S&P 500, they've made up for their pathetic-or nonexistent-dividends in outsized price gains as the market has bounced back. So if you're ready to buy FAANG stocks but want to squeeze a dividend out of them, here's how to do it. The first option is the route most folks take: buy an ETF that specializes in FAANG. This will give you these stocks at their market price, along with some diversification. That's great, but a tech ETF like the Invesco QQQ Trust or the First Trust ISE Cloud Computing Index Fund isn't going to get you much income, since neither pays more than 1% in dividends. You'd be far better off with the Columbia Seligman Premium Tech Growth Fund , a tech-focused closed-end fund holding stocks from the FAANG group, such as Apple and Alphabet, as well as other essential tech plays, like Microsoft . Visa also appears in STK's top-10 holdings-its vast payment network makes it something of a hybrid finance/tech stock. STK pays an outsized 8.5% dividend yields. That's 12.6 times more than you'd get from the aforementioned tech ETFs. In fact, there is no tech-focused fund in the United States that offers a higher yield than Columbia Seligman Premium Tech Growth Fund. You can buy this fund, get a strong tech portfolio and hold on as its market price rises - while drawing that huge 8.5% payout the whole time. Tim Plaehn, The Dividend Hunter Reaves Utility Income Fund is a closed-end fund that owns utility sector stocks and pays an attractive and growing income. Reaves Asset Management, the investment adviser to the fund, is an investment management firm that works exclusively in the utility stocks sector. Utility stocks are generally considered a safe sector in the market, primarily for dividend-focused investors. The problem with utility stocks for our strategy is a low average yield, with the largest sector ETF paying a yield of just 3.4%. But Reaves has managed its Utility Income Fund to pay a higher yield along with monthly dividends. Since the fund launched in 2004, the dividend has never been reduced, and in fact has regularly increased. The fund has returned 42.4% in dividends since I first recommended it in November 2015. Utilities are a safe harbor income investment class. Reaves provides that safety with a much higher yield than other utility-focused investments. The fund offers economic sector diversification to your income-focused stock portfolio. The company also pays dividends monthly, which is a bonus. I talk regularly with the fund managers at Reaves Asset Management, and they are committed to sustaining the Reaves Utility's dividend. The fund has returned 7.3% per year. The current yield is 6.9%. Marty Fridson, Forbes/Fridson Income Securities Investor Nuveen Core Equity Alpha Fund has an investment objective to provide an attractive total return, largely through long-term capital appreciation, income, and gains. The fund is unleveraged and invests in a portfolio of actively managed equities, selected from the stocks that constitute the S&P 500 Index. To enhance risk-adjusted performance JCE employs a strategy of selling call options with a notional value capped at 50% of the equity portfolio. Large-cap equities account for 99.9% of the fund's holdings, with Health Care Equipment & Supplies (7.4%), IT Services (7.0%), Equity REITs (5.9%), Specialty Retail (5.2%), and Oil, Gas, & Consumable Fuels (5.1%) making up the top five industries on 12/31/19. Returns have been strong historically, with Nuveen Core Equity Alpha posting a market price total return of +30.43% in 2019. To date, performance in 2020 has been challenging. The fund's top five holdings on that date were Intuitive Surgical ; CSX Corp. , Progressive Corp. , HCA Healthcare and NextEra Energy . With the idea taking hold that a recovery is not far off, however, we expect this fund to perform well over the near term. Distributions have been taxed largely as qualified and ordinary income. This investment is suitable for low- to medium-risk portfolios. We rate the fund a buy up to $17.50 for an annualized 5.71% yield. Jim Woods, The Deep Woods The SPDR DoubleLine Total Return Tactical ETF is an actively managed bond fund with a strong reputation and a broad scope of investment options subject to the decisions of DoubleLine Capital. It can broaden its focus to include or not include international investments in general, as well as specific countries. This relatively open take on exchange-traded fund (ETF) management is relatively uncommon and may be interesting for bond investors. Naturally, as a bond fund, the ETF's price is fairly stable. Indeed, the March market volatility did not affect this fund nearly as much as it did the broader market. TOTL manages over $3 billion in net assets. It pays out a 3.21% yield and has an expense ratio of 0.55%, which is not the lowest in the field by any means but could be considered fair in light of the fund's active management. Currently, the fund is heavily allocated to U.S. Treasury bonds and other U.S. government-based holdings, with some smaller positions in domestic corporate debt. If you're looking for a stable bond fund with a bold reputation and an expert active hand to add to your portfolio, the SPDR DoubleLine Total Return Tactical ETF could provide the payouts you seek. Todd Rosenbluth, CFRA Research's The Outlook Our Focus ETF for June is iBoxx Investment Grade Corporate Bond ETF , which tracks an index of more than 1,000 investment-grade corporate bonds and earns favorable risk and reward scores from CFRA's forward-looking ETF ratings. LQD sports a 2.7% 30-day SEC yield by investing in bonds with strong credit profiles. In late May, 46% of assets were in bonds rated BBB or equivalent, with 42% in A-rated securities and 10% rated higher than A. The index behind LQD is reconstituted monthly to incorporate new issuance, but also to remove securities no longer investment-grade. Due to the impact of Covid-19, a higher-than normal number of issuers could be downgraded to speculative-grade ratings in 2020. Yet, iShares portfolio managers have the flexibility to sell securities ahead of the rebalance hold on to a small percentage of them following the downgrade. The fund's average recent duration of 9.4 years is elevated relative to many fixed-income ETFs but is less of a concern to CFRA given the currently low interest rate environment. The Federal Reserve is unlikely to raise interest rates, in our view, given rising unemployment and slower consumer spending. CFRA's rates nearly 400 fixed-income ETFs based on a combination of holdings-level analysis and fund metrics. LQD earns its five-star rating for its combination of risk, reward, and costs. We think the fund provides stable income, through high quality credits, in a low-cost liquid product. Bob Carlson, Retirement Watch We need to accept that there will be high volatility. Ignore short-term market noise and focus on longer-term trends. Our latest addition to the portfolios is Cohen & Steers MLP & Energy Opportunity . It now is up 6.96% for the last four weeks but still is down 31.08% for the year to date. The yield is 8.03%. We added the fund last month. MLOAX invests primarily in companies that provide midstream energy services, such as pipelines and Energy prices seem to have hit a bottom, and there's been a surge in these investments. Even after the surge, they have a lot of room to the upside. As an actively managed fund, MLOAX can focus on the investments in each sector with the best fundamentals and values. After the oil price collapse, it began focusing on companies likely to withstand a severe downturn, avoiding overleveraged firms and those with weak balance sheets. It also increased its positions in Canadian companies, because they are more insulated from global price shocks. The fund recently owned 33 positions with almost 74% of its holdings in the 10 largest positions. Major positions were Enbridge , Kinder Morgan , TC Energy , Enterprise Products Partners and Energy Transfer .

Income Funds that Rise Above a Low-Yield World

There is no tech-focused fund in the United States that offers a higher yield than Columbia Seligman Premium Tech Growth Fund.

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