Fourteen Approaches for Earning Passive Income: Explore Closed-End Funds, Boosting Dividend Growth Rates, and Short-Term Bonds (Final Installment)
Investing Wisely for Passive Income in 2023:Aiming to create a steady stream of income through investments? Here are three asset classes that could be beneficial for you in 2023.
Investing in stocks can yield substantial wealth, but it also carries a high risk. If you're looking for a more stable and consistent return, consider these three options:
Closed-End Funds (CEFs)
If you're after hefty distributions, CEFs are worth looking into. These funds, predominantly based in Anglo-Saxon countries, offer distribution yields ranging from 4 to 9 percent. Each CEF employs a unique strategy. Some focus on licenses, lawsuits, equity portfolios, or options, while others invest in non-Anglo music rights such as Elvis Presley's royalties.
Want to learn more about CEFs? Check this out
Short-Term Bonds
For risk-averse investors, short-term bonds could be an attractive alternative. These bonds are often invested in through ETFs, ensuring maturity within one to three months, reducing risk but also returns. Based on your risk tolerance, you can choose from government bonds to corporate bonds like the PIMCO Short-Term High Yield Corporate Bond ETF.
Dividend Growth Stocks
Patient investors who seek long-term passive income can opt for dividend growth stocks. By investing early, you can potentially enjoy double-digit returns through consistent dividend increases. Microsoft, for instance, has significantly boosted its dividend in recent years.
Find more dividend growth stocks here
Further Passive Income Insights
We have additional articles in our series on passive income:
- 12 Ideas for High Passive Income: Today: REITs, Pipelines and Bonds (Part 1/4)
- 12 Ideas for High Passive Income: Today: US Dividend Stocks, REITs and Convertible Bonds (Part 2/4)
- 12 Ideas for High Passive Income: Today: European Dividend Stocks, Government Bonds and ETFs (Part 3/4)
- And more, keep checking our site!
Conflict of Interest Disclosure
The author holds direct positions in the following financial instruments mentioned in the publication or related derivatives, which could benefit from the price development resulting from the publication: Microsoft
CEF-info
If you're interested in investing in CEFs for regular income in 2023, consider the following approach:
1. Seek High-Distribution Funds: Opt for funds with a consistent payout history and sustainable distribution rates. For example, the Nuveen Credit Strategies Income Fund (JQC) offers a 12.9% distribution rate through a portfolio of floating-rate loans[1]. However, 2023-specific data isn’t available.
2. Evaluate Discounts to NAV: CEFs often trade at discounts to net asset value (NAV). In 2024, average discounts narrowed, but opportunities still exist. For instance, JQC traded at a 9.9% discount to NAV[1], which could amplify returns if the discount closes.
3. Diversify Across Sectors: Consider floating-rate loans, real estate, and high-yield bonds. These sectors perform well in specific market environments.
4. Assess Fee Structures: CEF fees can be high. JQC, for example, has a 5.48% expense ratio[1]. Prioritize funds with lower expense ratios relative to peers to preserve income.
5. Monitor Activist Involvement: Activist shareholders pressured CEFs in 2024[4]. In 2023, funds under activist scrutiny might have offered catalysts for NAV discount closure.
Dividend-growth-stocks
Find 2023's best dividend growth stocks by analyzing SEC filings, historical NAV trends, and distribution coverage ratios to identify robust income generators. Consistent performers, such as Microsoft, offer double-digit returns through regular increases.
- For those seeking regular passive income from investments in 2023, high-distribution funds like the Nuveen Credit Strategies Income Fund (JQC) with a consistent payout history and sustainable distribution rates could be beneficial.
- Investing in CEFs can potentially amplify returns if the discount to Net Asset Value (NAV) closes, such as the 9.9% discount JQC had in 2024.
- Diversifying investments across sectors like floating-rate loans, real estate, and high-yield bonds can help perform well in various market environments.
- To preserve income, it's crucial to consider the fee structures of CEFs, like the 5.48% expense ratio of JQC compared to other funds.
- Keep an eye on exchange-traded funds (ETFs) under activist scrutiny in 2023, as such funds might offer catalysts for NAV discount closure.
