Chicago, Illinois – Income investors are always on the lookout for stable investments that offer consistent dividends. When it comes to closed-end funds, however, the story is often one of dividend cuts due to increased leverage during market downturns. Despite this trend, some funds have managed to maintain their distributions without any cuts since their inception, even through major market events like the Global Financial Crisis of 2008.
Closed-end funds typically pay out the majority of their earnings to investors, making them more susceptible to distribution cuts. However, companies that retain earnings can grow their dividends over time as their earnings increase. In the world of closed-end funds, paying out more than what is earned can lead to a decline in net asset values over time, eventually necessitating a distribution cut if the funds are unable to cover their payouts.
Looking at funds that have never cut their distributions since their inception, especially those that weathered events like the Global Financial Crisis, provides valuable insights into their resilience and stability. Despite increasing interest rates and rising borrowing costs affecting leveraged funds, some closed-end funds have managed to maintain their distributions consistently over the years.
Examining specific funds like PIMCO Corporate & Income Strategy Fund (PCN), Guggenheim Strategic Opportunities Fund (GOF), BlackRock Health Sciences Trust (BME), Gabelli Global Utility & Income Trust (GLU), DNP Select Income Fund (DNP), and Reaves Utility Income Trust (UTG) sheds light on different approaches to managing distributions and navigating market challenges.
Each fund has its own unique story, from BME’s focus on the healthcare sector to UTG’s history of increasing distributions over time. Understanding the dynamics of these funds, including their NAV rates, premium/discount histories, and reliance on interest rate environments, can help investors make informed decisions about their holdings.
In an ever-changing market environment, where dividends are never guaranteed, the ability of these funds to maintain their distributions without cuts speaks to their resilience and management strategies. While some funds may be at higher risk of distribution cuts due to premium valuations or market conditions, others like PCN and UTG appear to be on more stable ground for the foreseeable future.
Investors must consider not only the historical performance of these funds but also their current valuations and potential risks. By staying informed and vigilant, investors can navigate the complexities of the closed-end fund market and make sound investment decisions.
