Here's My 8% Dividend Plan To Ride Out This Market Volatility

Forbes

22-03-2025

The market pullback we've seen in the last couple of weeks really hasn't come as a surprise to me. The economy is sending what you could—at best—call mixed signals right now. And stocks, as they do in uncertain times, are reacting.
I expect more volatility ahead, so today we're going to talk about ways to protect ourselves while maintaining the 8%+ dividend streams we're drawing from our favorite closed-end funds (CEFs). (Read: We're not going to cash here.)
Instead we're going to focus on a strategy that's been around as long as investing itself—diversification—by putting a bit more weight on assets beyond stocks.
That's what's great about CEFs: You can buy CEFs that hold a range of assets, such as the two I see as great diversification picks today: the preferred-stock-focused Cohen & Steers Tax-Advantaged Preferred Securities and Income Fund (PTA), with an 8.4% payout; and the PGIM Global High Yield Fund (GHY), a global bond fund with a 9.6% dividend. (Note that GHY is a holding in our CEF Insider portfolio.)
Regular readers of CEF Insider know we've been expecting the pivot we've recently seen in stocks and have discussed it in the last couple of issues. After seeing the inevitable recovery from the 2022 mess throughout 2023 and 2024, it was clear that stocks had gotten ahead of themselves.
And to be sure, the signals the economy is giving off remain murky. If the S&P 500 were to fall to a 10% decline from the start of the year, that may be a great buying opportunity (it's off about 3% from January 1 as I write this). Of course, I'll be watching those signals closely and will flag the moves we need to make in response—buys and sells—in CEF Insider.
For now, though, let's run through the economic picture we have in front of us, and how it tees up growth for GHY and PTA.
Over the last half-decade, the US economy has been growing at a strong clip, and we've settled at around a 2.5% growth rate after inflation (that mention of inflation is important: we're talking about real growth in the economy, regardless of how high or low inflation is).
This is good news, and it points to a basic stability in the economy that, over the long term, is bullish; America is growing at around 2.5% per year, pretty close to the 3.1% average we've seen since 1948 and close enough to the 2.8% average we've seen in the last 50 years.
In short, the economy overall isn't in a bubble, nor is it in a sharp contraction. Things are, well, pretty okay at the moment. That's worth remembering after a month of ruthless selloff action because it tells us that in the long term, investments—including stock investments—will pay off, as they always have.
Still, markets, as they say, take the escalator up and the elevator down, and it seems like we've already gotten in and someone has pushed the 'down' button. So what should we do?
There is growing evidence saying that, yes, we should seek alternatives to stocks now.
That's something we've been actively doing in CEF Insider in recent months and will continue to do. This is also where PTA and GHY come in, as we'll see in a moment.
First on the negative side, there are signs that both wealthy and lower-income consumers are losing confidence in the economy, with a decline similar to what we saw in 2020, when the pandemic hit, and in 2021/2022, due to post-pandemic inflation.
Consumer Sentiment
Apollo Academy
This needs to be taken with a grain of salt, however. After all, the economy was fine in 2021, and 2020 was a great year for stocks, even with the pandemic, thanks to the Fed's intervention. But sentiment leads behavior, and if this negativity gets entrenched, we could see more people cut back on spending.
Retail Sales Trend
Federal Reserve
The above chart is where we can see some really good news, though. While it looks like there's been a big slide in year-over-year retail-sales growth over the last few years, this is wholly due to pandemic effects. In 2021, we saw a huge gain in spending because people could leave their homes again, and the slide in 2022, to a slight decline in January 2024, was a normalizing effect, like a slingshot that was pulled tight and then released before going slack.
And since a year ago, we've seen a steady rise in retail sales, to a 4% year-over-year growth rate as of January 2025. That's a healthy clip, and it signals that most Americans aren't pulling back quite yet.
Still, there are alternative indicators showing that some parts of the economy are seeing weaker spending. Those include the National Retail Federation's more real-time indicator showing that retail sales went negative on a month-over-month basis in January and February.
So we're seeing at least some consumer pullback as some people feel less secure in the future of the United States economy.
If you are experiencing whiplash, I get it! Mixed economic data is notoriously tough to drill down into. But the key thing to keep in mind is that everything here points to a 'mid-cycle' economy, where America is no longer going gangbusters, but it's not in a sharp pullback, either.
That said, we are closer to a recession than we've been in the last four years. Which is why it's time to pivot toward high-yielding alternative funds like the two I mentioned earlier.
Let's start with the 8.4%-paying Cohen & Steers Tax-Advantaged Preferred Securities and Income Fund (PTA), which is cheap, with its discount to net asset value (NAV, or the value of its underlying portfolio) coming in at 6.8% as I write this, well below the fund's 4.9% average discount over the last year. This indicates that the discount's decline is purely the result of the market panic.
That's partly because PTA is misunderstood by most investors. It holds preferred stocks, which essentially means it benefits from higher, stable dividends even if stocks fall (since they yield more on average and payouts are prioritized over those of common stock dividends). Preferred-stock funds tend to suffer short-term volatility when stocks first take a hit, along with any other non-government asset, only to recover soon after, when their high dividends attract passive income-seeking investors.
Moreover, PTA benefits if the US economy is seen as weakening because that would push the Fed to cut interest rates. That, in turn, boosts the value of PTA's portfolio, since preferreds, like bonds, go up in price as rates fall.
Now let's talk about the PGIM Global High Yield Fund (GHY), with a 9.6% dividend and a discount that's raced toward par lately: It now trades at just a 0.8% discount to NAV.
I see that modest discount flipping to a premium because GHY, like PTA, will benefit if America's economy is seen as weakening. That's because a weaker economy means a weaker dollar, and a weaker dollar would, in turn, boost the value of the foreign bonds in which GHY invests.
In short, both funds should be safe havens for income-hungry investors on more stock-market weakness. That makes both attractive pickups now, with GHY getting the edge from me, due to its bigger yield and 'discount momentum.'
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 8.6% Dividends.'
Disclosure: none