As contrarians, we search for income stocks that vanilla investors hate, finding few dividend deals left in a market that has been on the rise since last October. However, in the realm of closed-end funds (CEFs), there are still a few bargains to be found. These five CEFs pay dividends ranging between 5.7% and 11.7% and trade at discounts between 12% and 18%.
One such CEF is General American Investors (GAM), a large-cap fund that holds companies with above-average growth potential. Despite mirroring the S&P 500 index fund, GAM has a track record that outstrips the benchmark by 1.5 percentage points with a 12.7% annualized total return. The fund trades at an 18.4% discount to NAV, potentially due to investors preferring to simply buy an S&P 500 ETF, leading to GAM being undervalued at just 82 cents on the dollar.
Another interesting CEF is the Royce Value Trust (RVT), the first small-cap closed-end fund established in 1986. RVT invests in small-cap stocks through a value lens, trading at an 11.8% discount to NAV. While historically cheaper, Royce Value Trust has recently outperformed its benchmark, the Russell 2000, but still faces competition from an indexed small-cap value strategy.
The Neuberger Berman Next Generation Connectivity Fund (NBXG) offers a tech-heavy portfolio with a focus on fifth-generation mobile network connectivity and technology. Despite a predominantly tech-heavy portfolio, NBXG also includes telecoms, consumer discretionary names, and other sectors, trading at a 16.4% discount to NAV. The fund also holds private and restricted stocks, contributing to its ability to keep pace with the tech sector despite being less than three years old.
The abrdn Healthcare Investors (HQH) CEF provides exposure to the healthcare sector, primarily in biotech companies, pharmaceuticals, and healthcare equipment. Recently acquired by abrdn, HQH offers an 11.7% distribution rate at a 15.6% discount to NAV, although its performance has been trailing pure biotech and diversified healthcare index funds, indicating potential room for improvement.
Lastly, the Kayne Anderson Energy Infrastructure (KYN) CEF focuses on energy infrastructure, with a majority of its assets invested in traditional oil, natural gas, and LNG midstream firms. KYN uses debt leverage to boost its distribution rate to over 9% and trades at a 15.2% discount to NAV. However, with the energy sector currently performing well, investors may want to consider purchasing KYN when the sector is out of favor for the best value.
