The move is especially infuriating because, as recently as April, we were hearing a lot about why the company would likely hike its payout in 2021, and management had stood by the dividend.
That’s now out the window—and the market’s not happy.
It just goes to show you that even companies among the vaunted Dividend Aristocrats fall from grace from time to time. We all remember back in 2017, when another sacred cow, General Electric (NYSE:GE), slashed its payout in half, as well.
Large companies eventually find limits to their growth, and when that happens, something must give. For firms that have made a name for themselves by paying high dividends, that can result in a cut that causes a big selloff and a lot of misery.
Here’s the good news: you can have growth and dividends. Instead of picking aging Dividend Aristocrats, you can buy closed-end funds (CEFs) that hold hundreds of high-quality companies.
The nice thing about CEFs is that they don’t limit us income investors to stocks that pay dividends! With CEFs, you can have a fund holding a company that pays no dividend at all, like Google (NASDAQ:GOOGL) or Amazon.com (NASDAQ:AMZN), but thanks to the fund’s portfolio management, you can pull in a big payout anyway: as I write this, the typical CEF yields around 7%, and some, as we’ll see below, pay north of 9%.
Let me show you just three of these funds, all with top-notch holdings and strong track records.
We’ll start with the AllianzGI Equity & Convertible Income Closed Fund (NYSE:NIE), whose biggest holding is Google.
Its next biggest positions are Facebook (NASDAQ:FB), Microsoft (NASDAQ:MSFT), Apple (NASDAQ:AAPL) and Amazon (AMZN). These are all companies that have posted strong growth, and NIE’s management has smartly held on to them, particularly in the last year, when tech went on a tear due to COVID-19 lockdowns:
NIE’s yield is actually small relative to other CEFs, at just 5.4%, but the fund has raised its dividend by over 30% in the last decade and, given its recent returns, is likely to increase the payout again pretty soon.
Plus, NIE is currently trading at a 9.4% discount to NAV, meaning you’re getting its great portfolio for less than you would if you bought the shares on the open market.
After NIE, consider the John Hancock Tax Advantaged Dividend Income Closed Fund (NYSE:HTD), a savvy fund that has a history of pivoting to where profits are to be made.
It’s heavily in utilities right now, which are in an uptrend that’s likely to continue in 2021 as economies reopen and utilities start serving more energy to more buildings in urban and suburban areas around the country.
The fund’s holdings have helped it drive a fast double-digit total return in 2021:
HTD’s 6.8% yield is a great payout, and its profits mean that this is a sustainable income stream you can rely on.
Finally, the Liberty All Star Equity Closed Fund (NYSE:USA) dates back to 1986 and has an incredible story to tell. Since then, it’s delivered a total return of 2,750% (including dividends), with almost all of that coming in cash, thanks to its rich payout; it currently yields a whopping 9.8%.
And just in the last five years, USA has returned 172%, compared to the market’s 120%. We don’t normally expect that kind of performance from a high dividend payer like this (AT&T investors certainly didn’t get it!). But there you are.
That big return means that USA is easily earning enough to sustain its payout. And as with NIE, it’s handing us that dividend with a portfolio of tech high-flyers—PayPal (NASDAQ:PYPL), Adobe (NASDAQ:ADBE), and Salesforce.com (NYSE:CRM) are top holdings—but it’s also diversified into many other sectors, such as pharmaceuticals and banking.
In other words, the fund is turning paper gains into cash dividends while providing access to a well-rounded portfolio of dynamic, productive companies. These are two advantages aging Dividend Aristocrats can never match.
Disclosure: Brett Owens and Michael Foster are contrarian income investors who look for undervalued stocks/funds across the U.S. markets. Click here to learn how to profit from their strategies in the latest report, “7 Great Dividend Growth Stocks for a Secure Retirement.”