Ultra-high dividend yields for individual stocks may appeal to investors seeking additional income—after all, who doesn't want high dividend payments? At the same time, though, a very high yield can sometimes be a giant red flag for investors. If the yield is high because of a value trap in which the price of the stock is failing and the company is distressed, there is a growing risk of either a dividend cut or a continued decline to share price, or both.
One alternative is a fund that spreads that company-specific risk across a broader basket of firms. The funds below are all closed-end funds, meaning each has a fixed number of shares and a price that may deviate from its underlying net asset value (NAV). Closed-end fund investors take on additional risks due to the structure of these products, but they are particularly well-suited to income generation. Like a traditional exchange-traded fund (ETF), they offer greater diversification and ease for investors not interested in actively managing their own portfolios—but unlike most ETFs, each of these funds makes monthly distributions, ensuring that investors get access to dividend payments quickly and regularly. Together, these factors make high-yield closed-end funds often a more compelling way of accessing dividends than individual stocks.
