URTH - AOD: This 14.10%-Yielder May Face Headwinds In 2025, But Has Strong Finances

2025-01-07 17:05:58 ET

Summary

• The abrdn Total Dynamic Dividend Fund offers a high 14.10% yield, primarily investing in dividend-paying equities, providing better inflation protection than fixed-income securities.
• The AOD closed-end fund's recent performance has lagged major indices, which will undoubtedly reduce its appeal to many income-seekers.
• The fund's largest positions are low-yielding companies with stretched valuations. This could cause its returns to be inferior in 2025 compared to 2024.
• The fund claims to have the ability to use leverage, but it is not currently employing any.
• Trading at a 10.36% discount to NAV, the fund is not particularly cheap compared to historical averages and its peers.

The abrdn Total Dynamic Dividend Fund ( AOD ) is a closed-end fund, or CEF, that income-focused investors can employ as a method of earning a very high level of income from the assets in their portfolios. Unlike many closed-end funds that are designed to appeal to income-focused investors, the abrdn Total Dynamic Dividend Fund invests its assets in equity securities rather than fixed-income securities. This is important because equities provide much better protection against inflation than fixed-income assets. Indeed, fixed-income securities usually provide no protection against inflation at all, which is one reason why the price of these securities tends to decline when market participants expect inflation to be a problem. After all, it is important that investors receive a positive real return on their money or else there is no point in saving and investing at all.

Equities, on the other hand, do not have this problem because they have inflation protection built into their structure. In most cases, a company’s revenues and profits can be expected to increase during inflationary periods, and this causes the price of its common stock to rise. Thus, equity closed-end funds should be better at protecting against inflation than fixed-income funds. As I mentioned in a recent article , inflation is likely to be a bigger problem than some analysts are anticipating going forward, so investors would be wise to structure their portfolios in such a way as to limit the loss of purchasing power that comes with it.

Fortunately, in this case, it is not necessary to sacrifice yield in exchange for equity exposure and inflation protection. As of the time of writing, the abrdn Total Dynamic Dividend Fund boasts a 14.10% yield. This is substantially higher than the yield of most domestic or global equity indices, as shown here:

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