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Strategies & Market Trends : Young and Older Folk Portfolio
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To: macbolan who wrote (7805)8/9/2024 7:11:27 PM
From: SeeksQuality3 Recommendations

Recommended By
Fireball Dividend
jopapgh
Markbn

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Some CEFs base their distribution (or cap their distribution) as a percentage of NAV. When the NAV falls, the distribution will fall with it.

Do you prefer a distribution that is maintained as the NAV declines until it is slashed 50%? Or do you prefer a distribution that walks down with the NAV, eventually rebounding? Either way the distributions are likely to be higher than the dividends you'll receive from something like SCHD (which distributes dividend income and just the income).

A CEF with declining NAV will eventually need to reduce the distribution. The declining NAV is a sign that the distributions exceed the income+gains for the fund, and that cannot be maintained indefinitely. If you want a stable and increasing dividend, CEFs aren't the place to look! They are good for delivering MUCH higher distributions, but as a result they are inherently less certain.

That said, some CEFs have done very well for a long time. My father had some shares of RVT -- which were annoying because they were held through a transfer agent, part in certificate form and part in book entry form, and EVERY step of the process was annoying. Plus we had only a faint idea of the cost basis involved. But the fund itself is a solid way to invest in small caps.
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