ECAT - 5 High Yield CEFs That Raised Distributions In 2024

2024-01-17 11:56:05 ET

Summary

• Several high-yielding closed-end funds have announced increased monthly distributions for 2024.
• The funds mentioned have a forward annual yield exceeding 10%, except for one that yields 9.5%.
• The funds that raised their distributions include abrdn Global Infrastructure Income, BlackRock ESG Capital Allocation Term, Eagle Point Income Co Inc, RiverNorth Opportunities, and Special Opportunities Fund.

As we begin the third week of trading in the new year, several high yielding closed end funds ("CEFs") that I own or follow have announced new monthly distributions for 2024. Most of the five funds that I will mention follow a “managed” or level distribution policy that sets the monthly distribution for the entire year at the start of the year, typically based on a formula that is based on some percentage of the previous year’s NAV. There are five funds that I will discuss that have increased the distribution starting in January. I am only highlighting the funds that changed the distribution from December to January, and I am not including any that increased (or reduced) the distribution prior to December 2023. Each of the funds that I will review offers a forward annual yield that exceeds 10% based on the new distribution, except for SPE, which yields 9.5%.

The five CEFs that raised the distribution in January and that I will review herein include:

abrdn Global Infrastructure Income fund ( ASGI )

BlackRock ESG Capital Allocation Term Trust ( ECAT )

Eagle Point Income Co Inc ( EIC )

RiverNorth Opportunities fund ( RIV )

Special Opportunities Fund ( SPE )

Of those five, I currently own 2 of them, EIC and SPE, and may initiate positions in one or more of the other 3 in the next few trading days. With that in mind, let’s get to the details.

Distribution Raises

The following CEFs all raised the monthly distribution between December 2023 and January 2024 and have a history of maintaining a regular monthly distribution. In other words, these distribution amounts are typically not adjusted during the ensuing 12-month period unless something changes that causes it to be increased or reduced.

abrdn Global Infrastructure Income Fund

The monthly distribution for ASGI was raised from $.12 to $.16 beginning in January, a 33% increase. The increase in the monthly distribution is based on the managed distribution policy as explained in the press release from the fund manager in December, along with the announcement of a share repurchase program.

(The Board) approved a managed distribution policy which will pay monthly distributions at an annual rate, set once a year, that is a percentage of the average daily net asset value (“NAV”) for the previous month-end prior to declaration (the “Distribution Policy”). On December 12, 2023, the Board determined the rolling distribution rate to be 9% for the 12-month period commencing with the distribution payable in January 2024.

This increase precedes the pending completion of a merger that abrdn previously announced with Macquarie/First Trust Global Infrastructure/Utilities Dividend & Income Fund (MFD). The merger is expected to be completed in Q1 2024. The MFD fund had been paying a quarterly distribution of $.20, which amounted to an annual yield of about 10%.

I do not currently own shares of ASGI in my Income Compounder portfolio but based on this news and the pending completion of the merger, I intend to start a position soon.

BlackRock ESG Capital Allocation Term

Another fund that uses a managed distribution plan is this relatively new CEF from BlackRock. On January 3, ECAT increased the monthly distribution by 20% from $.125 to $.15, as explained in this press release .

This change was made in order to better align ECAT’s distribution rate with its total return. ECAT returned 32.3% on market price and 18.1% on net asset value in 2023.

This is the second distribution increase since the Trust’s inception on September 27, 2021, after previously announcing a 25% increase in February 2023.

The ECAT fund currently trades at a discount to NAV of -9.5% and the forward annual yield based on the increased distribution is about 11%. The screenshot below from CEFconnect shows the trend in price and NAV over the past year.

A recent article in November 2023 from fellow SA analyst Nick Ackerman described how activist buying from Saba Capital is helping to close the discount and that impact is apparent beginning at the end of October 2023. According to recent SEC insider trading reports, those purchases by Saba have continued to the point where Saba (owned by famed investor Boaz Weinstein ) now owns more than 24 million shares.

ECAT is another fund that I do not currently own but intend to start a new position in the next few trading days, especially if the price dips back below $16.

Eagle Point Income Co Inc

The CLO (collateralized loan obligation) debt fund from Eagle Point, EIC, is one that I do own and have previously covered. My most recent coverage of the fund was back in November, when I explained that EIC had returned over 15% annually for the past 3 years and is still soaring. Since that article was published two months ago, the total return has increased by more than 13%.

Starting in January, the monthly distribution was increased from $.18 to $.20, as I discussed in my article which was published shortly after the increase was announced:

While the stock price has traded mostly sideways for the majority of 2023, EIC offers income investors a yield of nearly 17% going forward based on the recently increased monthly distribution of $.20 per share. That distribution is well covered from recurring cash flows as explained in this update and based on comments made during the Q3 earnings call.

At the current price of $15.63 as of the market close on January 16, 2024, the annual yield is just over 15%. Although EIC does not have an official managed distribution policy, the recent history and comments from CEO Tom Majewski made on the Q3 earnings call indicate that the distribution amount is likely to continue at the increased amount for the foreseeable future, although only declared through March 2024 at this time.

The company continued its strong momentum from the first half of the year, as it generated another quarter-over-quarter increase in portfolio cash flows. Our portfolio is doing what we designed it to do in a rising rate environment generate more cash for our investors. Given our continued confidence in the portfolio, we were pleased last week to again increase our regular common distribution, the monthly distribution and beginning in January 2024.

Currently, EIC is one of the top 10 holdings in my Income Compounder portfolio. Monthly distributions of EIC if reinvested can also receive an additional discount (if supported by your broker) of up to 5% as explained in the company’s semiannual report .

RiverNorth Opportunities fund

The RiverNorth taxable closed end funds, of which there are 3, all maintain a level distribution policy. Those 3 funds include RIV, OPP (which I do own, and which made a small downward adjustment to the 2024 payout) and RiverNorth Capital and Income Fund (RSF). The RIV fund adjusted the distribution upward in January, while OPP and RSF both decreased theirs. As explained in the press release , each of the funds intend to provide level monthly distributions for the entire 12 months, although that is not guaranteed:

Each Fund maintains a level distribution policy with the intention of providing monthly distributions to shareholders at a constant and fixed (but not guaranteed) rate that is reset annually.

RIV increased the monthly distribution from $.1278 to $.1289 for a forward yield of about 13.5% at the current price and trades at a discount to NAV of about -7.9%. RIV is organized as a “fund of funds,” holding other CEFs, BDCs, ETFs, etc. Interestingly, the top holding in RIV is ECAT (as of 10/31/23) according to CEFconnect. Like the other managed or level distribution funds, the new amount is determined based on the NAV of the fund at the end of the previous year, so it is generally not a surprise to investors when the distribution changes in January.

In accordance with its level distribution policy, RIV’s annual distribution rate has been set equal to 12.50% of the average of the Fund’s NAV per common share reported on the final five trading days of the preceding calendar year.

RIV employs leverage, and because it holds many of the CEFs that I already hold and manage myself in my Income Compounder portfolio, I have chosen not to invest in shares of this fund, although I do hold shares of OPP. Also, both RIV and OPP offer a discounted DRIP policy as explained on page 60 of the Annual Report.

Special Opportunities Fund

One final fund to discuss today that increased the dividend in January is SPE, which raised the monthly distribution from $0.0867 to $0.0954. Although the new forward annual yield is just under 10% at 9.5%, I decided to include this fund in my report because of the significant increase in the distribution along with the historically wide discount at which it currently trades. SPE is another fund of funds that also employs a managed distribution policy. In the case of SPE, the policy is to pay out 8% of NAV as of December 31, 2023 which was estimated to be $14.31.

The fund currently trades at a discount of more than -15%, as shown in this snippet from CEFconnect.

The top 10 holdings include some that I do not (and probably would not) buy for my own portfolio. It also benefits from activist involvement from both Bulldog Investors, the fund’s investment adviser since 2019, and Saba, who actively participate in closing the discount of various CEFs through activist investing as explained in this recent news story from Bloomberg.

I recently bought an initial position in SPE and intend to add to it whenever the price drops until it equals about 2.5% to 3% of my total portfolio value, which is what I consider a full position for a fund like this. I expect that the price will continue to appreciate as the discount closes providing an even better total return over the next few years.

There may be other CEFs that offer high yield distributions, and which also raised them in January. The five that I described above are ones that I am aware of, but if there are others that I missed please include a note in the comments section. Thanks for reading and good luck with your investing and have a healthy, prosperous, and joyful 2024!

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