June 17, 2024
Collect Inflation-Crushing 10%+ Yields While This Stock Appreciates

Collect Inflation-Crushing 10%+ Yields While This Stock Appreciates

Shah Gilani Mar 06, 2023

Inflation just won’t come down, at least nowhere near the Federal Reserve’s 2% target rate – even after the Fed Funds Effective Rate has jumped from 0.08% in February 2022 to 4.57% in February 2023.

That means a lot of investors are turning their attention back toward income investing as a way of making sure they’re deploying capital in the most beneficial way possible. Two weeks ago, I wrote about the immense gains we’re seeing from U.S. Treasury bills, enough to make me declare “cash is king” again, in a way we haven’t seen in decades.

But there are other inflation-beating investment opportunities out there, and I have one for you this week that I think is a must-grab.

It’s a closed end fund (CEF), which is a type of mutual fund that issues a fixed number of shares through a single initial public offering (IPO) to raise capital for its initial investments. Its shares can then be bought and sold on a stock exchange, but no new shares will be created, and no new money will flow into the fund.

What I like about this fund is its focus on investing in floating/adjustable rate loans. As interest rates rise, the accompanying interest rates associated with the debt that this fund issues also rises. That’s great because it gives them the ability to increase dividends on loan investments, which can act as a possible hedge against rising short-term interest rates.

Their holdings are geared to help them withstand a potential recession if it comes, they’re trading at a significant discount to their Net Asset Value (NAV), and they’re delivering a fat 10.69% dividend at time of writing. What’s not to like?

Why JQC Is the Best Dividend Stock to Buy Right Now

The fund is Nuveen Credit Strategies Income Fund (JQC), a CEF that invests only in floating-rate loans, as I said above.

The fund typically invests at least 80% of its “Assets,” at time of purchase, in loans or securities that are senior to its common equity. The Fund invests at least 70% of its “Managed Assets” in adjustable-rate senior secured and second lien loans.

Of the fund’s holdings, 81.1% of the fund’s loans are “senior loans”, which means JQC is first in line to get paid in the event of a default, and the majority of its claims are backed by real collateral.

The fund favors higher-rated debt from larger, more liquid issuers, while mostly avoiding lower-rated, speculative credits (those rated B-/B3), whose yields are lower relative to the associated level of risk. In general, the fund favors larger issuers with more scale and the ability to pass through higher input costs, which give the issuers more ability to withstand a potential recession later this year.

Another thing I really like about JQC right now is that it’s trading at a significant 10.12% discount to Net Asset Value (NAV). As market sentiment improves, that discount should shrink (pushing share values higher toward the NAV). And while we wait for that to happen, their 10.69% dividend yield is icing on the cake.

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