Start the conversation
Comment on This Story
Or to contact Money Morning Customer Service, click here.
High-yield dividend stocks offer investors refuge in volatile markets like this one. Stocks are near record highs, while inflation fears and a sputtering economy threaten to wipe out these gains.
Adding a dividend-paying stock to your portfolio can help minimize the risk. The trouble is, they're harder than ever to find.
When you look at a list of blue-chip, high-yield stocks like Caterpillar Inc. (NYSE: CAT), Altria Group Inc. (NYSE: MO), and Phillip Morris International Inc. (NYSE: PMI), you see that most of them have appreciated somewhat dramatically since the first of the year. The higher the share price, the worse the dividend yield.
Even the big oil companies that many had dismissed as dinosaurs have made significant moves higher in the first quarter of 2020. Exxon Mobil Corp. (NYSE: XOM) is up over 36% on the year.
Income hunters have pushed shares of REITs higher almost daily since the March lows in the stock market. There are very few high-quality REITs that yield 6% or more right now.
For the first time in several years, we see fixed-income and preferred stock closed-end funds trade at a premium to the value of the stocks and bonds they own.
Where does that leave investors who want income stocks right now?
It could mean frustrating searches through lists of dividend aristocrats with below-average yields.
It could also mean coming to Money Morning, where we've done the in-depth research to find dividend stocks paying healthy yields.
And the strategy we've uncovered is the perfect solution for any income-seeking investor...
The Best Dividend Stock to Buy
If we look deep enough, we can find those opportunities that other investors simply don't understand.
Most people understand the idea of the Dividend and Income Fund Inc. (OTCMKTS: DNIF).
This is a closed-end fund that owns a portfolio of stocks and bonds and looks to pay out steady income to its investors. The fund has a managed distribution plan that pays out a fixed amount every quarter to its investors.
The fund has a solid portfolio of stocks. The top holdings are familiar companies like Intel Corp. (NASDAQ: INTC), Comcast Corp. (NASDAQ: CMCSA), T. Rowe Price Group Inc. (NASDAQ: TROW), and Williams-Sonoma Inc. (NYSE: WSM).
About 8% of the fund is invested in bank stocks right now, which is fantastic as banks are seeing massive tailwinds from a recovering economy and rising long-term rates.
Dividend and Income Fund also owns some bonds, preferred stocks, and energy master limited partnerships (MLPs) that help increase the income available to pay out to shareholders.
That's what you like to see in a dividend fund like this one. But there's an even better reason for buying into this fund: Big institutional investors are mad at the fund manager, which means you can own it for an incredible discount.
The fund manager, Thomas Winmill, is one of the least shareholder-friendly fund managers of all time. He passed several different anti-takeover provisions that keep the fund from coming under pressure from activist shareholders.
He even has a provision that says that no one can own more than 4.9% of the fund without the board's approval.
So far, only the securities and investment firm of which Mr. Winmill is the chair, Bexil Corp. (OTCMKTS: BXCL), has received permission to own more than 4.9% of the fund.
If you're an investment bank or hedge fund, you don't like being locked out of control. If you're an individual investor like us, you don't care.
The fund currently trades at a mind-boggling discount of about 31% from its net asset value (NAV).
We are paying less than $0.70 on the dollar for a high-quality portfolio of dividend-paying stocks and income securities. This is unheard of in today's climate.
What we are going to do is buy shares of this fund at this massive discount to NAV and wait.
There has been talk of a lawsuit to force Winmill to remove some of the unfriendly provisions and allow investors to own a larger stake.
There is also a suit filed on Jan. 14, 2021, in the District Court for the Southern District of New York challenging the legality of so-called "control share" limitations on voting by shareholders.
There are hungry activists swirling around this fund, just waiting for any change of the ownership restrictions.
Even if the lawsuits fail at some point, Winmill and Bexil will want to monetize their position in the fund. The only way to that will be to turn Dividend and Income into an open-end fund or liquidate the fund and give the money back to shareholders.
The fund is paying out $1 a year in dividends. At today's price, that's a yield of about 8%.
We can collect around 8% in yields with the potential for a 40% pop in share price.
Let the institutions worry about corporate governance. Winmill has put together a good portfolio of stocks, and we are going to collect a high stream of income from that portfolio.
Something will eventually happen to eliminate or reduce the discount giving us huge gains.
Until then, we will just get paid a higher yield than even junk bonds can offer right now.
The U.S. Economy Could Be About to Turn Upside Down...
... And Chief Investment Strategist Shah Gilani will show you how to come out on top.
He's breaking down his entire 2021 investing strategy, including which obscure stocks are at the top of his "must-buy" list.
Plus, he's detailing the big stocks you need to sell ASAP.
He's revealing it all - names, tickers, and prices.
Be ready to take notes - Shah moves fast.