Buy This 9.7% Dividend At A 16% Discount

 | Aug 01, 2019 05:26AM ET

There’s an intriguing trend showing up in second-quarter earnings. And today I’ll show you how you can jump on it with a cheap closed-end fund (CEF) —I’m talking a 16% discount here.

Then there’s the dividend: a “hidden” 9.7% yield. I’ll say more about that shortly.

This trend might sound boring at first, but it’s crucial, because it proves that most folks have the wrong idea about the markets: they should be buying instead of fretting over interest rates, the next recession or other headline-driven fears.

But now more than ever, it’s where you buy that’s important. And the overlooked trend I’ve discovered proves that you need look no further than our own backyard: in the USA.

Buying American Pays Off

The truth is, companies that rely on the US for the bulk of their sales are beating other, more global, firms.

Second-quarter earnings that have been reported so far tell us that S&P 500 companies with over half their sales coming out of America have seen their profits rise 3.2%. Meanwhile, companies dependent on revenue abroad saw their earnings fall 13.6%.

Meantime, revenue from the S&P 500 as a whole has risen 4%, on average, crushing expectations of 2.8% growth heading into the quarter. And three-quarters of S&P 500 firms have reported earnings per share above estimates.

So all that fear about an earnings recession you may have heard about? Now it looks like strong sales might pull up profits up to the point it might not happen at all.

But the takeaway is this: by focusing our buys on US-oriented companies, we’ll put ourselves in a strong position for rising profits (and dividends, too).

How We’ll Tap American Strength for 9.7% Dividends, Big Upside

A great way to do this is through a bargain CEF focusing mainly on domestic demand.

Luckily, there’s one fund nicely set up to let us do just that: General American Investors Company (GAM), which trades at a 15.8% discount to NAV (the third-largest discount of any US equity CEF). The reason why is so silly that it’s the perfect market inefficiency for us to capitalize on. I’ll explain in a minute.

First, though, let’s look at GAM’s history, which is solid, with 10% annualized total returns over the last decade and relatively low volatility:

GAM Buyers Triple Their Money