How To Find Massive Dividend Deals In The Tariff Panic

On one front, this tariff pandemonium changes nothing for us: We still see our favorite high-yield investments—8%+ paying closed-end funds (CEFs)—as the best choice to anchor your retirement portfolio.

In fact, times like this add to their appeal even more.

That’s because, in a crash, we CEF investors don’t have to sell a single unit of our funds to get the cash we need to fund our lives. Our big dividends—many of which roll in monthly—take care of our needs for us.

Then there’s CEFs’ discounts to net asset value (NAV, or the value of their underlying portfolios). This unique-to-CEF measure tells us when a fund is cheap or pricey. And right now, thanks to the tariff panic, we’ve got a raft of discounted CEFs to choose from.

And there’s one more edge we can exploit with CEFs: the fact that CEF investors are very conservative and lean heavily toward funds with long track records.

Many “Young” CEFs Are Anything But

This tendency to go with the tried-and-true opens up an opportunity for us. That’s because many CEF firms, like Nuveen, PIMCO and BlackRock, have CEFs of all ages in their stables. Here’s the thing, though: Whether the fund is “young” or “old,” they all tend to be run by the exact same people!

So we can, in effect, buy a younger CEF and take advantage of its discount. Then we simply ride along as it ages, and its valuation nears that of its older sibling.

Let’s zero in on this opportunity by looking at three CEFs from PIMCO, a California-based firm that’s long had a grip on CEF investors’ imaginations: the PIMCO Corporate & Income Opportunity Fund (PTY), PIMCO Access Income Fund (PAXS) and PIMCO Dynamic Income Strategy Fund (PDX). PIMCO’s “brand halo” makes it difficult to buy its funds at a discount.

Let’s start with PTY, far and away the oldest of our trio.

Launched over 20 years ago, PTY sports an 11.2% yield that investors, well, love. It’s also by far the biggest of the three, with $2.3 billion in assets under management, compared to $910 million for PDX and $665 million for PAXS.

On the other side, you have PAXS, with a 12.3% yield, and PDX, which yields 7.9%. PAXS launched at the start of 2022, and PDX is a bit older, having held its IPO in 2019.

But even that 2019 date is young by CEF standards; it makes PDX the second-youngest PIMCO CEF on the market. But PTY overshadows its two younger siblings because its age lets investors analyze its long-haul payout history.

And that history is very favorable indeed:

Here you can see that PTY’s payouts have been pretty steady over 20 years, which included the pandemic, the subprime-mortgage crisis, and the low interest rates of the 2010s. (The spikes and dips in the purple line above are special dividends.)

While it’s true that the regular payouts have dipped a bit (cut 13.6% since the fund’s IPO), the average annualized yield on PTY has been 11.3% for investors who bought at the IPO date, as of this writing.

To put that in perspective, someone who bought $100,000 worth of PTY has earned, on average, an income stream of $945 per month (a bit over $11,300 per year) without having to do a single thing.

So, you can see why PTY has attracted a premium to NAV throughout its history. This simply means investors are willing to pay more for PTY than its portfolio is worth.

PTY’s Portfolio Climbs 1,000%+

It makes sense when you think about it: PTY gives investors a steady paycheck, which encourages them to stick with the fund. As a result, there are fewer shares of PTY on the market, since CEFs—unlike ETFs—tend to have a fixed share count over their lifespans. This means PTY’s market price tends to drift upward more than its NAV does. Although that’s been going up too:

In total, PTY has earned an 11.7% annualized return on a NAV basis, as of this writing. That’s higher than the 11.3% average yield investors have received, so you can see how PTY has been able to maintain payouts for over two decades.

To be clear, for every dollar put in PTY, over $10 in profit has been generated. When you consider that, the fund’s premium to NAV makes even more sense. And it follows that this premium would survive the tariff mayhem: PTY’s record is just too good.

Fears Create Bargains in Younger CEFs

Now let’s shift back to the younger PAXS and PDX. They don’t have the track records to attract investors like PTY does, even though they’re managed by the same people. That’s why we have seen PAXS’s premium all but disappear amid the tariff panic, while PDX’s discount has grown wider.

This is a clear buy signal, but let me back that call up with another chart showing these funds’ dividend histories.

Now before we go further, yes, PDX’s dividend line (in orange) looks a bit wonky. There are two reasons for that: One, the fund launched just before the pandemic and, at the end of 2020, it cut its distribution by more than half.

Two, PDX moved from quarterly payouts to monthly dividends in March 2024, so the dividend went from 26 cents, when the fund paid its last quarterly dividend in March 2024, to 11.3 cents a month. That masked a big raise that looks like a dip in the orange line above.

In reality, PDX increased its payouts by more than 30% in early 2024.

PAXS meantime, has seen one hike to its regular dividend since launch, along with a big special payout in late 2022. That “bonus” payout came as the markets were at their most fearful; thanks to PAXS’s focus on debt, it can ensure strong payouts, even when stock markets are panicking.

You’d think strong income plays like these would attract buyers, despite their young ages. And they no doubt will—but not now, with the tariffs causing terror among the most conservative investors. That fear has dragged down both funds’ valuations, making both strong buys.

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