These 3 Big Dividends Just Got Cut. They're Safer Than Ever

Forbes

24-06-2025

Hundred Dollar Bill Being Cut With a Scissor
If you invest for long enough, you may hear a skeptic of high-yield investments—such as 8%+ yielding closed-end funds (CEFs)—say something like:
'Sure, you're getting a lot of income now, but what if that dividend gets cut?'
Today we're going to answer that with a look at how a dividend cut can actually send a CEF (or any dividend investment, really) on a profitable run. We'll do it by looking at three CEFs that followed this exact pattern: Cutting dividends and then going on to give investors huge returns for years and years.
These funds show that a dividend cut on its own isn't reason enough to avoid an investment. It could, in fact, be a buy signal.
ASG Ties Payouts to Portfolio Gains—and Delivers Triple-Digit Total Returns
Let's start with the Liberty All-Star Growth Fund (ASG), which yields 8.2% as I write this and trades at a 7.7% discount to net asset value (NAV, or the value of its underlying portfolio). Put another way, the fund's portfolio is valued at just over 92 cents on the dollar.
That portfolio consists of a basket of large- and midcap stocks, with holdings like NVIDIA (NVDA) and Meta Platforms (META) alongside firms such as property manager FirstService (FSV) and Ollie's Bargain Outlet Holdings (OLLI), which runs a chain of discount stores.
The fund uses an approach to dividends that a handful of other CEFs also follow: It commits to paying 8% of its NAV in payouts each year (in ASG's case through four quarterly installments). That means that the dividend does tend to float, and the latest one is about 17% below where it was a decade or so ago.
Now in light of that policy, this dividend 'cut' is a little different than one we might see at a fund with a fixed payout, like the two we'll examine next. But regardless, ASG's lower payout might cause some investors to pass on the fund.
That's too bad for them, since ASG has delivered plenty of special dividends in the last decade (the spikes in the chart above), culminating in a 162% total return (with price gains and reinvested dividends).
Did ASG's payout technically decline? Yes. But that strong total return more than makes up for it, proving that the lower payout is a poor reason to avoid this well-run CEF.
A 13.6%-Yielder That's Made a Smart Dividend 'Cut '
Our next fund yields well into the double digits: the 13.6%-yielding BlackRock Technology and Private Equity Term Trust (BTX). As the name says, BTX holds well-known tech stocks like NVIDIA, Amazon.com (AMZN) and Apple (AAPL). It also holds a collection of private-equity investments.
We added BTX to my CEF Insider service in our April 2025 issue. But before then we avoided it, partly because its IPO was in 2021, when many tech firms, and many of the PE investments BTX's former management team purchased, were overvalued. BTX, which replaced its managers at the end of January, has only recently traded at what I would consider a buyable price.
We've been more than happy that we were patient! In less than two months since our buy call, BTX has returned 16%, as of this writing.
Even with its recent dividend cut (more on that in a moment), BTX's current yield still translates to more than $11,000 per month on every $1 million invested. But you could easily miss this if you just looked at its dividend history.
BTX Dividend
Of course, a 19.3% decline in the last five years jumps out, and that gentle slide lower at the right side of the chart also looks like it could be a warning sign.
Let's take the second point first: That slide is due to the fact that the fund's previous management team overdid it on their last dividend hike. The new team is gradually adjusting lower. That's not a reason to worry.
Meantime, a major reason why BTX's yield so high is that the fund remains underpriced, even after its recent run (as yields and share prices move in opposite directions). As you can see above, at the start of the year, it traded at a double-digit discount that has since narrowed to around 2%. That's a major reason for the 16% total return we've realized from this fund at CEF Insider.
So, even if BTX's 13.6% yield is at risk of moving lower, investors who've bought the fund are still doing fine, thanks to the stock-price appreciation they've realized. (And of course, the huge income stream, which remains so even with a decline.)
In other words, a continued gradual drift lower in the payout is fine, as long as BTX's portfolio keeps rising. We've seen that happen consistently over the last couple of months, and I expect it to continue as the fund's discount moves closer to becoming a premium.
Growth More Than Offsets This Payout Cut
Finally, let's consider another 'cutter' that's (now) delivering consistent income: the Pioneer High Income Fund (PHT), which holds high-yield corporate bonds.
PHT's portfolio has been appreciating, despite volatile markets, as the Fed postponed rate cuts. The longer the central bank holds off, the more high-yield, longer-duration bonds PHT can buy (these bonds become more valuable as interest rates decline).
PHT has had a 15.6% annualized return over the last three years, as of this writing, as it recovered from the 2022 selloff. And look at what the dividend did in that time:
PHT Dividend
That 12% payout cut happened while PHT was delivering those same strong returns. Sure, the dividend—current yield 8.2%—made up a smaller part of PHT's 15.6% annualized return due to the cuts, but capital gains more than made up the difference. In a situation like that, does the lower dividend really matter?
Look at it this way: Every dollar put into PHT three years ago now earns a 9.6% yield on an investor's original cost. And on the price front, every dollar is now worth $1.17.
These funds are just three examples of how dividend cuts are only one part of the story when looking at high-yield investments like CEFs—and how they can actually spark a turnaround in an investment's performance. That said, it's also true that you can't just put all of your money in one CEF and rely on that payout for the rest of your life.
But it is possible to tap a strong income stream and, with just a bit of elbow grease, rebalance your portfolio every now and then to secure that income stream. And, of course, capital gains are also on the table to grow your portfolio in the long run.
Michael Foster is the Lead Research Analyst for Contrarian Outlook. For more great income ideas, click here for our latest report 'Indestructible Income: 5 Bargain Funds with Steady 10% Dividends.'
Disclosure: none