Let’s face it: after the year we just put in, we’re all exhausted. But we must not let go of our vigilance. Because in times like these, it’s easy to let our buying and selling decisions be distorted by alarming headlines.

Worse, the noise, and almost always False market forecasts that dominate the news these days can lure you away from the reliable dividend payers you need to fund your retirement.

I hate when this happens to investors — especially when they could easily use high-yield closed-end funds (CEFs) to do it Annuity only on dividends. I have three “low-drama” CEFs that can get you there thanks to their outsized 8.1% average yield. All three also show strong dividend growth and upside potential. More on this high-yielding trio to come.

There’s only one “retirement rule” you need to know

It seems that for most investors do Pay attention to retirement planning, they’re obsessed with a random amount that consultants or experts say they need to retire: $1 million, $2 million, or whatever. Then they quickly become discouraged.

That’s understandable, but everyone’s situation is different, and there’s really only one “rule” that matters: your retirement income must exceed your expenses. This is where CEFs offer you a great advantage.

In the chart above, we see how much the average American needs to save to pull $30,000 a year in dividend income from their portfolio at various yields. For example, with a 3% return, they would have to save around $1 million, or a whopping 33.3 years of their projected annual retirement expenses, to get that $30,000 in annual income. If they plan to spend $60,000 a year, they would need at least $2 million.

Of course, the higher your return, the less you have to save. A 6% yield would cut the amount you would need to save in half — so you’d need $1 million for $60,000 in annual dividend income.

There’s just one problem: the higher your returns, the more risk you typically take. For example, I remember oil bulls doing this Alerian MLP ETF (AMLP

AMLP
) and similar high-yielding energy investments in 2014. (AMLP is a passive ETF that holds master limited partnerships, or MLPs, that primarily own oil and gas pipelines and storage facilities.)

AMLP’s 7% yield didn’t seem too risky at the time, but then oil demand and oil prices fell, dragging AMLP down with it.

Still, it was possible to play AMLP for short-term bounces. For example, the purchase in July 2022 paid off well.

take that away? purchase based solely on a high return, like the AMLP buyers did seven years ago, can produce price losses that quickly outstrip your high income stream. The better game? Set yourself up with a strong price opportunity above to go along with our rich payouts.

Actively managed CEFs, as members of my CEF Insider Knowing service can bring us high returns and the kind of price increase you would expect from stocks.

3 Great Equity CEFs to Consider Now

The following simple three-CEF portfolio stands out from most other income options because it has three key strengths:

1. it gives you strong US blue chip stocks for less than you would pay if you bought them outright.
2. It pays off average dividend yield of 8.1% (We reduce our required savings to 12.5 years from the 33 years our typical investor would require).
3. Broad diversification across the US economy.

Each of the three funds mentioned above, the Liberty All Star Equity Fund (US), the Liberty All-Star Growth Fund (ASG) and the Nuveen Dow 30 Dynamic Overwrite Fund (DIAX), Focus on quality US stocks that have performed well over the past decade. This has helped these CEFs sustain their high dividends as their management teams take profits in bull markets, pass those profits on as payouts to their shareholders, and then hunt for bargains during pullbacks.

This explains why have dividends for this three CEF portfolio risen over the past decade, with the US and ASG doing most of the heavy lifting.

You’ll also notice that dividend payouts for ASG and the US tend to fluctuate. This is because these funds commit to paying out a percentage of their net asset value (NAV, or the value of their portfolios) each year in the form of dividends: 10% in the case of the US and 8.1% for ASG.

This approach is particularly timely now that the 2022 drop has provided these funds with opportunities to make bargains that they should later be able to sell at higher prices. This would result in further dividend growth for their shareholders.

Low leverage, option strategy for added attraction

Finally, these three funds use essentially no leverage, which is a plus in today’s rising rate environment (although it should be noted that most CEFs, including the ones I recommend), do. CEF Insiderhave access to a lot of cheaper credit than any consumer could get).

In addition, DIAX receives additional revenue from its covered call strategy, under which it sells the option to purchase its holdings to investors at a fixed price and date in the future. The company keeps the fees it charges for these options regardless of whether the investor ultimately buys the stock or not.

And what about these holdings? As previously mentioned, USA, ASG and DIAX all own high quality US large cap companies with strong cash flows – companies like Microsoft

MSFT
(MSFT), Apple

AAPL
(AAPL), United Health Group

UNH
(UNH) and Goldman Sachs (GS). The strong performance of US large-caps like these over the past decade has resulted in investors who bought those three CEFs back then prospering — a result I expect 10 years from now for today’s buyers.

Michael Foster is the Lead Research Analyst for Contrary outlook. For more great income ideas click here for our latest report “Unbreakable Income: 5 Bargain Funds With Constant 10.2% Dividends.”

Disclosure: none