Building a High-Income Portfolio: Your Guide to Dividend-Yielding CEFs in 2023

Imagine building an investment portfolio that generates 10.5% in annual returns—paid out to your account every single month. Sounds too good to be true? Here’s the surprising part: you can do it with just three closed-end funds (CEFs), and it’s far simpler than most investors realize.

Why This Strategy Works

The beauty of dividend-focused investing lies in recapturing your entire principal investment in less than a decade through payouts alone. Traditional stock dividends typically arrive quarterly, creating unpredictable cash flow. CEFs flip this script by distributing monthly, aligning perfectly with your bill-paying schedule. This isn’t something you’ll find in conventional equities.

The entry requirements are refreshingly straightforward:

• A brokerage account — Nearly every major brokerage supports these funds
• Modest capital — Far less than you’d expect. A $500K investment could potentially fund retirement through dividends alone, depending on lifestyle
• Minimal time — About 10 minutes to execute what amounts to buying and holding quality securities

Three Dividend Increases Opportunities for 2023

Strategy 1: The Bond Fund Powerhouse (13.3% Yield)

PIMCO, co-founded by legendary “Bond King” Bill Gross in 1971, manages the PIMCO Dynamic Income Fund (PDI). This fund commands investor confidence so profound that its shares typically trade above their underlying net asset value (NAV)—a premium reflecting management excellence.

PDI’s 13.3% yield with a 10.3% premium is fairly valued when compared to its historical five-year averages. The fund’s decade-long performance speaks volumes: an 8% annualized return matching the S&P 500, a remarkable achievement for bond-focused investing. Unlike equity index holders who receive sub-2% yields and must rely on volatile “paper gains,” PDI investors pocket their entire returns in actual cash dividends.

The fund has grown its regular dividend by 25% over the past decade and supplements this with periodic special distributions significantly larger than monthly payments. This combination—a growing 13.3% dividend, bonus payouts, and fair entry pricing—creates an exceptional environment for income-focused investors.

Strategy 2: Blue-Chip Stocks With Premium Income (9.7% Yield)

The Liberty All-Star Equity Fund (USA) holds cornerstone American companies: Alphabet (GOOGL), Microsoft (MSFT), Dollar General (DG), UnitedHealth Group (UNH), and Visa (V). This portfolio composition has delivered 12% annualized returns over the last decade—performance few competitors can match.

USA’s 9.7% yield fluctuates with the fund’s NAV, meaning dividends aren’t static month-to-month. However, this approach allows management to preserve capital for investment opportunities without announcing painful dividend cuts that would tank share prices. Management’s track record of deploying this cash effectively appears validated by that impressive 12% annualized performance.

Currently, USA trades at a discount to NAV—a rare occurrence for a fund with such strong performance credentials. This temporary mispricing presents a contrarian buying opportunity to acquire blue-chip equity exposure at below intrinsic value.

Strategy 3: Real Estate Exposure (8.4% Yield)

The Cohen & Steers Real Estate Opportunities and Income Fund (RLTY) offers exposure to thousands of properties through large-cap US real estate investment trusts, including warehouse leader Prologis (PLD), tower company American Tower (AMT), and residential operator Invitation Homes (INVH).

Launched less than a year ago, RLTY trades at a 10.2% discount to NAV—a significant opening most investors haven’t noticed. Sister funds under the same management typically trade at par or premiums. This pricing disconnect suggests RLTY remains undiscovered. The 8.4% monthly distribution provides steady cash flow while you wait for the market to recognize the fund’s value and real estate trends to normalize.

The Critical Metric: NAV Discount as Your Entry Signal

The most reliable indicator in CEF investing remains the discount to net asset value. Purchasing during wide discount windows substantially increases your odds of capturing both substantial price appreciation and outsized dividend yields. This 2023 landscape presents multiple CEF investments trading at irrational discounts, with potential 20%+ price appreciation possible alongside 9.5%+ dividend payouts.

The time to act on such opportunities is when they appear—which is now.