With the S&P 500 up double digits this year, the media is at it again — worried that we’re headed for another crash.
“Stock Market Crash: Expert Shares Huge ‘Red Flag’ Signaling Recession,” says Business Insider. “Will the Stock Market Crash? This Hedge Funder Thinks So,” declares New York Magazine.
And on it goes.
I guess it makes sense, since the S&P 500’s roughly 19% gain so far this year is way more than its typical return. The point is that 2023 does not exist in a vacuum divorced from history, and only a little history shows that we are not. however in a bull market, and stocks are not overheating, despite their recent gains.
And as we know at CEF Insiderwe can give ourselves an extra discount, and the greater peace of mind that comes with it, when we buy our shares through closed-end funds (CEFs) trading at discounts to net asset value (NAV, or the value of their underlying portfolios). ).
Stocks Still Behind Where They Were 2 Years Ago
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Without taking dividends into account, we’re still about 5% from the peak we hit in the first two days of 2022. And with dividends, we’re 2.1% from the peak. In other words, we are recovering from the bear market of 2022, but we are no in a bull market still.
This difference is important because if stocks were to simply move sideways over the next year, they would not return to their peak in about three years. That would mean a total of five years of flat stocks, an event that hasn’t happened since the dot-com boom.
Before that, it had only happened three other times, all of which make sense: after the stock market crash of the 1920s, as a result of the 1973 oil embargo, and during World War II.
![](https://www.nasdaq.com/sites/acquia.prod/files/ARP-Inline-Image.png)
Source: CEF Insider
Unfortunately, these precedents cannot tell us much today. I don’t think we can prepare for World War III, for example. Stocks (and for that matter money!) probably won’t matter much if that ever happens. And we are obviously not in a depression.
As for 1973, a return to similar conditions as we saw then was a risk in early 2022 (which is why the market crashed even when the data was good – anxiety about this scenario was just too high). And if we had high inflation and low growth like in the 1970s, stocks and the economy would struggle for a long time.
But that hasn’t been the case, with inflation falling and now creeping ever closer to the Fed’s target range:
Inflation Drops
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Inflation, after soaring in 2022, began to decline in the second half of that year. This is very different from the two years starting with the oil embargo.
Inflation Rose—and Rose–in the 70s, Breaking With Today’s Drop
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The reason for the difference is, of course, the Fed: then, the central bank’s monetary policy was loose, and now, as we all know, the Fed has consistently raised interest rates and is committed to keeping them higher for longer.
The bottom line here is that if we don’t have the major crises of the past that have led to years of low returns, and if stocks haven’t fully recovered yet, we have a great setup to buy.
GDV: Managed Risk With Managed Payments
Despite this, many people are still wary of jumping into stocks, and after the wild rises of the past few years, I can’t blame them.
This is where CEF as the Gabelli Dividend and Income Trust (GDV) can help The fund pays a monthly dividend that yields 6.5% per annum, giving us a diversified collection of proven large caps such as Mastercard (MA), Microsoft (MSFT), food manufacturer Mondelez International (MDLZ) and JPMorgan Chase & Co. (JPM).
Those are all low-volatility names on their own. Plus, if you’re worried about too much stock exposure, you can pull out that 6.5% income stream and invest it elsewhere while you wait for this market to move from recovery to further growth.
And thanks to GDV’s value-investing focus and selection of stocks with sustainable earnings and reliable growth, the fund has produced stable dividends for a long time.
Constant Monthly Dividend
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(Note: The reductions in the chart above are special dividends in addition to the regular payouts and should not be interpreted as cuts to the regular dividend.)
GDV also receives less investing attention in 2023, no more, despite its portfolio seeing a bump as stocks gain steam. That pushed its discount to net worth, or the gap between the fund’s net worth and its market price, into the high double digits. (Though it’s showing some momentum lately, which is a trend we like to see in CEF–a discount that’s still wide but starting to fade.)
GDV Fails To Get The Respect It Deserves (Now)
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The bottom line here is that as we see more investor interest in CEFs as stock market gains continue, thanks to lower inflation and the need to catch up to the 2022 downturn, this $2.5 billion discount will likely return to the 2.4 % discount. it had in 2018. As this happens, it will unlock capital gains, in addition to the GDV income stream.
It is only to be expected that more investors will jump to CEFs. But after a year aside, I expect that time to come sooner rather than later.
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Buying CEFs at big discounts to NAV — like the one GDV sports — is critical to booking big wins in these incredible income plays. Doing so basically gives us a double discount about shares–one about the shares themselves (which as I just showed are still oversold) and one about the CEF.
That provides a lot of peace of mind as we collect the high dividends of our funds.
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See also:
• Warren Buffett Dividend Stocks
• Dividend Growth Stocks: 25 Aristocrats
• Future Dividend Aristocrats: Close Contenders
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.