A Plan For 6%+ Payouts In Today’s 'Dividend Desert'

 | Aug 05, 2021 05:16AM ET

We talk a lot about discounts and dividends in our CEF Insider service. And they’re critical, of course. The need for a high dividend is obvious, especially if you’re in or near retirement. And buying a CEF at a big discount to net asset value (NAV) can slingshot us to serious price gains.

But being too focused on one number, be it the discount, the dividend or an individual stock’s P/E ratio, is what renowned contrarian Howard Marks calls “first-level thinking.” To get to the real truth of whether an investment is worth buying, we need to go deeper.

Of course, we contrarians know this. But even the savviest investors fall victim to first-level thinking from time to time, so we need to be vigilant.

And we need to be especially vigilant now, because making this mistake could lead you to hold off on buying stocks (and stock-focused CEFs). After all, the common wisdom tells us that stocks are too expensive now, so it’s safer to stay on the sidelines.

We’re going to debunk this simplistic (and deeply flawed) argument today. We’ll also talk CEFs—and our dividends—as we do.

h2 Stocks Often Get Pricey—and Then Get Pricier Still/h2

The focus of today’s first-level fears is the S&P 500’s P/E ratio of 30, which to many folks says stocks are ripe for a crash.

But this fear is unlikely to become reality. Bloomberg columnist and portfolio manager Nir Kaissar has a simple explanation of why this is so. In a recent column, Kaissar points to the following chart:

h2 Stocks Have Been “Pricey” Since 1990!