Closed-End Funds for Monthly Income: A Guide

The article discusses income investing options, including individual investments like high-paying equity securities and common stocks with growing dividends. It highlights the advantages of closed-end funds, which offer a lower price per share and potentially higher yields than their net asset value. Two attractively priced closed-end funds are mentioned for monthly pay.

In the realm of income investing, closed-end funds (CEFs) offer a compelling option for investors seeking immediate diversification and professional management. Unlike exchange-traded funds (ETFs) or traditional mutual funds, CEFs do not have the same liquidity requirements, allowing them to invest in more complex and less liquid assets. This article highlights two attractively priced CEFs that provide monthly distributions to their investors.

Eaton Vance Tax-Managed Buy-Write Opportunities Fund (ETV)

ETV is a closed-end fund that aims to generate current income and gains, with a secondary objective of capital appreciation. The fund invests in a diversified portfolio of common stocks and writes call options on U.S. indices to generate earnings from option premiums. ETV currently offers a distribution yield of 8.37% and has a discount of -6.17% relative to its net asset value (NAV).

The fund's strategy involves writing index options rather than individual holdings, which can cap its upside during market surges. However, ETV adjusts its short call options every two weeks, allowing it to constantly readjust the percentage it is writing out-of-the-money. This fund has been a long-term holding for many investors and presents an attractive opportunity due to its current discount 2 Attractively Priced Closed-End Funds For Monthly Pay^[1].

Flaherty & Crumrine Total Return Fund (FLC)

FLC is another closed-end fund that focuses on providing high current income to its common shareholders. The fund invests primarily in preferred securities and other fixed-income-oriented exposure, with a significant portion of its holdings in financial institutions. FLC currently offers a distribution yield of 6.58% and has a discount of -6.62% relative to its NAV.

The fund's leverage-adjusted effective duration of 5.6% makes it interest rate-sensitive, and its unhedged leverage resulted in significant headwinds during the 2022/2023 period. However, the easing of short-term rates has led to a reversal in the fund's distribution trend, with lower borrowing costs improving its financial performance 2 Attractively Priced Closed-End Funds For Monthly Pay^[1].

Conclusion

Both Eaton Vance Tax-Managed Buy-Write Opportunities Fund and Flaherty & Crumrine Total Return Fund offer attractive income investing options for investors seeking monthly distributions. While they come with their unique risks and trade-offs, these CEFs present opportunities for investors to benefit from their current discounts and potentially higher yields relative to their NAV.