3 High Yield Dividends To Buy As Stocks Hit All-Time Highs
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We’ve got a frankly, bizarre dynamic setting up in stocks right now.
Global stocks are clobbering their American cousins this year. But here’s the disconnect: This is happening even though US stocks are hitting all-time highs seemingly every day.
On the surface, it sounds like both of these can’t be true. But as we’ll see below, this setup makes total sense. We’ll also look at how we can play it for both offense—price upside, in other words—and defense (in the form of 8%+ dividends), too.
Here we’re looking at the S&P 500, as measured by the SPDR S&P 500 ETF (SPY), in purple, compared to the Vanguard FTSE All-World Ex-US Index Fund (VEU), a good benchmark for global stocks (minus the US, as the name says), in orange.
So what’s going on here?
It’s only when we zoom out that things clear up: Over the long run, America’s lead is unquestionable—and it puts this year’s “blip” in much better context.
This is why, if you subscribe to my CEF Insider service, you know I remain bullish on US stocks, particularly the high-yield closed-end funds (CEFs) that hold them.
That’s because at CEF Insider we focus on dividends (often in the 8%+ range) and we think long-term. And while US stocks might trail for short periods, betting against America over the long term is always a mistake.
But I do understand that more Americans are interested in buying international stocks. We can see that in the run they’ve put on this year: It quite simply wouldn’t have happened without Americans climbing aboard the global bandwagon. (America does, after all, have the highest percentage of stock investors in the world, at 55% of the population, going by the latest numbers from Visual Capitalist.)
And holding at least some international stocks is just plain smart, especially if we see another April-style pullback in US markets.
Beyond that, many international stocks pay higher dividends than US firms. Even looking across the northern border nets a considerably higher dividend yield, with index funds tracking major Canadian stocks yielding 2.6%, more than double the S&P 500’s 1.2%.
But that’s still just 2.6%! Not nearly enough to fund a retirement on. VEU pays roughly the same. Then there’s VEU’s long-term underperformance, which I talked about a second ago.
The main problem with VEU is that it’s simply too diversified. With its passive approach to owning just about everything abroad, it holds a lot of questionable companies in questionable countries. This is why actively managed funds (like the three 8%+ payers we’ll discuss below) have outperformed it in many cases.
For instance, Tencent Holdings is one of VEU’s biggest positions, and the Chinese government has warned stock prices have gotten too high in the mainland as of late. That’s raised the possibility of new rules to limit stock speculation, which would hurt large stocks like Tencent.
That’s why we want active management—especially in international stocks. That way we ensure we’re avoiding not just poor-quality companies but also those that operate in less-stable nations, where the rule of law may not be as strong as it is in places like North America and Europe.
3 Huge Global Dividends (8%+) That Crush Their Benchmarks
The three CEFs we’re going to discuss next give us that. Plus they’ve all beaten VEU (in green in the chart below) over the long term. And they’ve done so during a time when foreign assets were less popular among US investors. That sets them up for stronger gains now that more Americans are thinking globally.
Let’s dive into them.
The Calamos Global Dynamic Income Fund (CHW) gives us stock-like upside with convertible bonds acting as “ballast.” I say that because convertibles provide high, steady income, even in volatile markets. The result is a dividend that shows up every month and yields 8.1% on an annualized basis.
With CHW, we’re effectively buying cash flow and the option to pivot between income-producing bonds and stocks, with both on sale; its largest positions—Taiwan Semiconductor (TSMC), NVIDIA (NVDA) and a Boeing (BA) 6% convertible preferred bond—let us tap surging AI growth, while the convertible bond dampens pullbacks with its steadier price and payouts.
And because the fund’s mandate spans the world, management can shift with volatility. This flexibility has also helped keep the fund’s dividend steady over the last three years.
Next up is the LMP Capital & Income Fund (SCD), with its combination of income-producing assets and capital-gains-producing stocks. The fund pays monthly, at a 9.3% annualized rate. And it’s cheap, too, trading at a 6.7% discount to net asset value (NAV, or the value of its portfolio).
SCD’s biggest positions consist of both tech darlings and utilities, with names like Marvell Technology (MRVL), Oracle (ORCL) and PPL Corp. (PPL) pairing growth and reliability. The result is a steady, diversified cash machine that can lean toward offense or defense without putting the dividend at risk.
Finally, let’s talk about a less-obvious investment I like because it combines American blue chips and top foreign firms. The Virtus NFJ Dividend Value Fund (NFJ) captures income from foreign demand while blending in US firms, with their reliable regulations. It also generates extra income using a covered-call strategy that generates more income when global tensions rise.
NFJ owns dividend payers and convertibles, sells call options and hands us a 9.3% dividend while trading at a steep 9.5% discount. The fund also uses zero leverage—a nice extra margin of safety should interest rates unexpectedly rise.
With a portfolio dominated by Alphabet (GOOGL), AMD (AMD) and Prologis (PLD), this fund combines American giants with large margins and reliable cash flows with exposure to foreign demand (about half of Alphabet’s revenue comes from abroad, and about a quarter for AMD).
Now, I’ve been saving the best part, and it’s this chart.
SCD’s discount (in orange above) recently exploded to a premium before fading to its 6.7% discount. CHW’s 10.8% discount (in purple) has broken through the 10% mark a few times lately, and NFJ’s 9.3% discount (in blue) has narrowed quite a bit.
On the whole, this tells us that more investors are noticing these funds, setting up their discounts to shrink further, putting a lift under their share prices as they do.
Michael Foster is the Lead Research Analyst for Contrarian Outlook. For more great income ideas, click here for our latest report “Indestructible Income: 5 Bargain Funds with Steady 10% Dividends.”
Disclosure: none
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