Dividend-News

CEFL Still Attractive With 21.8% Dividend Yield, But Interest Rates Are A Concern

Published Mon, 23 May 2016 12:10:27 -0400 on Seeking Alpha

I am still bullish on the UBS ETRACS Monthly Pay 2xLeveraged Closed-End Fund ETN (NYSEARCA: CEFL) despite the recent rebound in the price from the January 2016 lows. The annualized yield on a monthly compounded basis is 21.8%, based on calculations including my projected June 2016 CEFL dividend. The weighted average discount to book value for the 30 high dividend closed-end funds that comprise the index upon which CEFL and its unleveraged version, the YieldShares High Income ETF (NYSEARCA: YYY), is based, was 9.21% on May 18, 2016. This is less than the 12.43% on February 24, 2016. However, this discount to book value is still somewhat larger than historical norms. A year ago the weighted average discount to book value was 8.6%.
The two concerns that have depressed high dividend closed-end fund prices over the last year, are fear of higher interest rates and credit concerns. Some of the high dividend closed-end funds hold junk bonds. High yield bonds have been under severe pressure, especially those involved in oil and other natural resources. The rebound in the price of CEFL and some of its' components since January 2016 is due mainly to the improvement in the credit outlook for high yield bonds in the energy and natural resource sector. GAMCO Global Gold Natural Resources & Income Trust (NYSEMKT: GGN) is the largest component of CEFL with a weight of 5.62%. GGN exemplifies the rebound in that sector since the January 2016 lows. It closed at $6.29 on May 18, 2016. On... Read more