Why This Soaring 8.1% CEF Dividend Thrives On Market Crashes

I get it: For many CEF people, the rough start to 2025 conjures (painful!) memories of 2022.

It’s an easy comparison to make. But we must resist doing so. Because unlike in 2022, today’s volatility is caused by panic alone. That’s the kind of situation we contrarians love!

Nonetheless, I get it if you still want to be cautious. With that in mind, I’ve got a fund that gives us full market exposure with a key “hedge”—and a growing 8.1% dividend, too.

But I’m getting ahead of myself. Let’s first talk about what’s causing this “Chicken Littleism” in the first place. It’s two things, really. But we’ll start with this chart:

No doubt about it, this chart shows that the US economy contracted in the first quarter. It’s something we’ve heard a lot about since the latest GDP report came out on April 30.

That GDP report was the first real evidence of contraction, worries about which have weighed on the S&P 500 all year: Its total return down about 4% so far in 2025, as I write this.

If this sounds familiar, it’s because it’s right where stocks were at this point in 2022:

But this is no 2022. Unlike then, we’re not facing soaring inflation and the prospect of spiking interest rates.

Instead? Irrational panic. Let’s talk about what really happened with GDP in these past three months. Bloomberg characterizes it simply: “The economic contraction last quarter was driven by imports.”

In other words, the economy contracted because imports surged as businesses and consumers bought more imported goods before President Trump’s tariffs kicked in.

This is a quirk of how GDP is measured: Economists subtract the value of imports when calculating it, so higher imports made the first quarter’s numbers look worse than they would’ve been otherwise.

In other words, the economy did not shrink because Americans were buying less. It just appeared to shrink because they were buying more.

Weird, I know, but the truth is this wasn’t a “real” contraction, like in 2020 and 2008, the last times the US economy (and stocks) went deeply into the red. And what we saw in the first quarter of 2025 was much less severe than at this point in 2022, after the US economy had contracted 1% in the first quarter of that year. So we’re left with a market that’s had as steep a selloff as it saw in 2022 but with less steep of an economic contraction.

The bottom line: This selloff is more about fear than the economy’s fundamentals.

If we see GDP rise in the next quarter, stocks will probably breathe a sigh of relief and rise, especially when investors remember what happened after the first quarter of 2022.

Buying at This Point in 2022 Was a Winning Move

If you’d bought at the end of that quarter, you’ve enjoyed a 9.4% annualized profit, as of this writing.

I think that’s a clear indication that times like this are when we should buy, not sell. But if you’re still worried about short-term volatility, I understand—a lot has happened since January 1.

And luckily there is a way to mitigate risk. Which brings us to the strategy (and ticker) I want to talk to you about today.

Our “Volatility Powered” CEF Play: A 8.1% Dividend That Loves a Wild Market

For those concerned about more volatility, a smart move now is to buy a closed-end fund (CEF) that holds the S&P 500 and also sells call options against its holdings.

I say it’s a smart move because an option-selling strategy gets the fund cash that it can pay out to investors as dividends. That’s because the fund sells the option to investors for a fee—called a “premium” in option-speak. Whether or not the investor winds up buying the stock, the fund keeps the premium and uses it to fund the dividend.

One such fund is the Nuveen S&P 500 Dynamic Overwrite Fund (SPXX), which, similar to an index fund, holds all the stocks in the S&P 500.

So you’re getting exposure to US blue chips like Visa (V), JPMorgan Chase & Co. (JPM) and Microsoft (MSFT), just as you would through a popular index fund like the SPDR S&P 500 ETF Trust (SPY) but with a twist: Instead of the index-average 1.4% dividend, you’re getting a rich 8.1% dividend through SPXX.

What’s more, that payout has actually grown over the last five tumultuous years:

Better still, unlike with ETFs, which never trade at a discount, we can pick up SPXX at a 3% discount to net asset value (NAV, or the value of its underlying holdings). So we’re essentially buying the S&P 500 for 97 cents on the dollar. A small discount, to be sure—but a discount nonetheless!

Another thing to remember is that call-option premiums rise with volatility. In other words, the wilder the market, the more stable this fund’s payout gets.

All of this means that we have a rare opportunity to buy not only a hedging tool, but a way to build our dividends when market panics come our way.

But there is one thing to keep in mind before you rush out and buy this one: Its option strategy is great for income, but it does stunt the fund’s growth in a rising market, as its best performers are sold, or “called away.” This is why I don’t recommend holding covered-call CEFs focused on an index, like SPXX, for the long run:

So while SPXX can play a role in your portfolio, I recommend full-fledged stock CEFs, both for the long term and today, with stocks oversold in relation to economic fundamentals.

Michael Foster is the Lead Research Analyst for Contrarian Outlook. For more great income ideas, click here for our latest report “Indestructible Income: 5 Bargain Funds with Steady 8.6% Dividends.”

Disclosure: none