Looking for Yield? Buy These Closed-End Funds and REITs

Forget the market noise. Here's the only thing you need to know: if you'd bulked up your holdings on any of the dips we've seen in the last four years, you'd be a lot richer today, notes Michael Foster, a contributor to MoneyShow.com and the editor of CEF Insider. For high yields and growth potential he looks at the best buys among closed-end funds and REITs. The reason for the market's one step back, two steps ahead pattern is simple: despite the interest rate- and trade-driven terror, corporate profits and sales are rising (as are workers' wages), and unemployment is low. In other words, the U.S. economy is solid -- and it's stayed solid through every short-term crisis of the last few years. So now we have another pullback that's given us another chance to amplify our upside. But what to buy? You can easily get into the market with an index fund like the SPDR S&P 500 ETF , but there's a problem: we want to have a nice stash of dividend cash to drop into stocks on the next pullback, and with SPY, your payouts are tiny, with just a 1.9% dividend yield. This is where closed-end funds (CEFs) come in. With an average yield of 7.4%, CEFs are much bigger income producers than the index, and three CEFs are particularly appealing right now, with overhyped fears making them unusually cheap. Let me explain. Because CEFs' market prices can deviate from the value of the holdings in their portfolios (called the portfolio's net asset value, or NAV), CEFs can trade at wide discounts to their NAV- even if the funds have a long history of strong performance. That's exactly what we're seeing in the three funds I'm going to show you now. Let's start with the Boulder Growth & Income Fund , whose 3.9% yield is more than double that of the average S&P 500 stock, even though it's actually on the small side for a CEF. Plus, BIF pays out special dividends every once in a while and has been aggressively increasing its regular quarterly payout, too. General American Investors also goes after bargain stocks, plus the fund is a bargain itself at a 14.5% discount to NAV. GAM is what I call a stealth yielder: while its normal dividend (paid annually) yields about 1%, the fund gives you the bulk of your cash through a big special dividend in December. These special payouts are a big deal: they gave GAM an annualized yield of more than 9% last year, and a similar yield is likely in November, when the fund will announce its end-of-year payout. What about the portfolio? GAM, like BIF, is a value-focused fund, zeroing in on firms with strong cash flows, like Microsoft , Alphabet and Republic Services . That gives it a mix of high-performing tech stocks and stable cash generators from other sectors. This balanced approach is how GAM has been returned so much cash to shareholders over the years. The Nuveen Tax-Advantaged Dividend Growth Fund takes a similar approach as BIF and GAM, but its regular dividend yields an outsized 7.7%, so you don't have to wait for dividend hikes or special payouts to get your big yield here. Plus, JTD trades at a 2.3% discount that, while smaller than those of GAM and BIF, is still far too big, given what the fund does. JTD's diverse portfolio ranges from Honeywell International to SAP , UnitedHealth Group and AT&T . It also includes some tech, such as Microsoft. The fund's global approach helps it find bargain-priced companies with entrenched client bases and stable revenues. That's why JTD has been crushing the market for a decade. And here's the best part: only a few people know. If you look at the market-price movement for JTD, it seems pretty ho-hum. But this is without dividends. Add in JTD's big payouts and the chart looks much better. Not only has JTD soared over the last decade, it has also beaten the index, with a huge chunk of its return in cash, to boot. That means this fund shouldn't trade at a discount at all -- but the fact that it does means it's certainly worth your attention now. These funds are all useful buys during short-term downturns if you want to try to play the changes in their discounts. REITs Perhaps the biggest advantage REITs have over your typical rental properties is that they can be bought and sold on the open market, like any stock, at your usual trading (typically low, for online brokerages) fee. Rental property, on the other hand, may not sell as fast as you'd like, and closing costs easily run into five figures. Preferred Apartment Communities owns the same kind of real estate most regular folks do. But the scale, of course, is much larger: APTS owns or invests in apartment properties across the south, northeast and eastern seaboard. That gives it diversification your typical individual landlord doesn't have and helps insulate it from a downturn in any one market. What's more, APTS, which yields 7.4% today, has a long history of outperformance. The REIT has posted a 150.9% total return in the last decade, beating the SPDR Dow Jones REIT ETF an index fund that passively follows the REIT sector, by a huge margin. But here's the twist: APTS has also beaten average home-price growth, as measured by the Case-Shiller Home Price Index (in red), by a lot more. Plus, APTS has its payouts well covered, thanks to a 133.5% dividend-coverage ratio, while income as measured by adjusted funds from operations (AFFO, a better measure for REITs than earnings per share) has been rising, thanks to more tenants and higher rents. You can add commercial property to your apartment holdings with a REIT like Tanger Factory Outlet Centers , landlord to over 2,600 different shops. Tanger has succeeded in avoiding plunging retail sales caused by e-commerce, thanks to its focus on its niche of outlet stores that haven't faced as much online competition. Tanger's shares have pulled back in the last couple years, after the company's massive dividend growth (the payout is up 85% in the past decade) caused investors to get ahead of themselves and give it a huge valuation far above its competitors. But today, Tanger is more in tune with the rest of the market, making it worth any income investor's attention. What's more, its revenues are still rising, and earnings results (based on FFO) have beaten expectations in 11 out of the last 12 quarters (and met expectations in that 12th quarter). The REIT's dividend now yields 9.4% and is still growing, with the latest hike just this past April. And there's likely more to come, with Tanger's dividend-coverage ratio checking in at 180%, a figure far beyond what most REITs can boast. Finally, you can get deeper into commercial real estate with a REIT like Global Net Lease , which focuses on industrial and office properties. GNL has geographic diversification in spades, with properties in both the US and Europe. That diversification is in part behind GNL's reliable dividend growth from 2015 to now, which is a gift for income investors: the REIT's yield is now 11%, making it one of the biggest-yielding property REITs in the world. Put all three of these REITs together and you have a diversified real-estate portfolio covering thousands of properties internationally, with a big average yield of 9.3%. That's impossible to get renting out a single house or condo -- and it comes with far fewer headaches, too.

Looking for Yield? Buy These Closed-End Funds and REITs

These three CEFs are particularly appealing right now, with overhyped fears making them unusually cheap.

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