The highest paying closed-end fund (CEF) currently identified, based on recent distribution rates, is the Advent Convertible and Income Fund (AVK), boasting an impressive distribution rate of 11.9%.
Closed-end funds are professionally managed investment companies that issue a fixed number of shares through an initial public offering (IPO), which then trade on exchanges like stocks. Unlike open-end mutual funds, CEFs do not continuously issue or redeem shares, meaning their market price can deviate from their net asset value (NAV). Investors often consider CEFs for their potential for high income generation, as many distribute a significant portion of their earnings to shareholders.
Top-Paying Closed-End Funds by Distribution Rate
When evaluating the "highest paying" CEFs, the distribution rate is a key metric. This rate indicates the annualized percentage of a fund's share price that is paid out to investors as distributions. While a high distribution rate can be attractive, it's essential to understand that distributions can come from various sources, including income, capital gains, or even a return of capital, which can reduce the fund's NAV.
Here's a breakdown of some prominent closed-end funds known for their high distribution rates:
| Closed-End Fund (Ticker) | Distribution Rate* |
|---|---|
| Advent Convertible and Income Fund (AVK) | 11.9% |
| BlackRock Multi-Sector Income Trust (BIT) | 10.4% |
| Tortoise Sustainable and Social Impact Term Fund (TEAF) | 9.1% |
| Eaton Vance Tax-Advantaged Global Dividend Income Fund (ETG) | 8.5% |
*Distribution rates are subject to change and may vary based on market conditions and fund performance. Investors should conduct thorough due diligence and consult with a financial advisor before making any investment decisions.
Understanding Closed-End Fund Distributions
Investors are often drawn to CEFs for their regular, often high, income payouts. These distributions typically occur monthly or quarterly. The sources of these distributions can include:
- Net Investment Income: Interest or dividends earned from the fund's underlying portfolio holdings.
- Realized Capital Gains: Profits from selling securities within the portfolio for more than their purchase price.
- Return of Capital (ROC): This occurs when a fund pays out money that is considered a return of your original investment. While it can boost current income, it reduces your cost basis in the fund, meaning future capital gains taxes might be higher. It's crucial to understand the source of distributions, as a high ROC might indicate unsustainable payout practices.
For those interested in exploring these investment vehicles further, understanding their structure and how distributions are generated is key. Learn more about Closed-End Funds to gain deeper insights into their characteristics and potential benefits.
