'CEF Mastery' Weekly Published Every Saturday. Free Report Links at Bottom of Page.

The Mexico Fund (MXF) and Reaves Utility Income Trust Fund (UTG) are both 'CEF Mastery' qualifying funds. The John Hancock Tax-Advantaged Dividend Income Fund (HTD) missed qualifying status with a 'Score' one point shy of qualifying (26 minimum), but recent performance pushing its 'Final Score' up to 41 will surely push (HTD)'s 'Score' higher helping it to exceed the 26 minimum threshold. In addition to the healthy scores of these three funds, they also have an abundance of estimated monthly distributions remaining.

Fun(d) Facts

Only 4.91% of high yield closed end funds covered their distributions with net investment income (NII) alone. This number has continuously declined over the years, from nearly 10% when 'CEF Mastery' started in 2020 to 4.91% today, meaning that more funds are relying on appreciating asset values to support their distributions rather than cash inflows from income sources (NII and realized gains) alone.

So Then, How Does a CEF Pay Its Distributions?

If a fund relies on asset values to support its distributions, where does the money to pay the distribution come from?

I posted a video some time ago showing all the many ways a fund can raise cash to satisfy its distributions in the absence of cash received from income.

Cornerstone CLM and CRF Review by 'CEF Mastery'

Among the many sources are Rights Offerings, Shelf Offerings, use of ATM (at the market) facilities, raising capital, and even reinvested distributions.

Regardless of where the funds come from, it is preferred that, on paper, a fund can cover its distributions from all income sources (NII, Realized, and Unrealized Gains).

All Reported Income Covered Distr (NII, Real & Unreal) @ 50.31%

This number can fluctuate wildly based on the unrealized portion of the overall closed end fund market's asset values. For example, after the bear market in 2022, this number sat at a mere 10.74%. As of today, June 27th, the number sits at 50.31%. This number indicates the percentage of closed end funds that managed to cover their distributions from all three income sources, but the inverse reflects the percentage of funds that are dependent on return of capital (ROC) to maintain their current distributions (49.69%). Some of this is by design.

When a fund pays (ROC), it isn't always out of necessity. If you look at the last line in the table above, "Funds covered distr but paid % of ROC," sits at 66 total funds, or only 20.25%. This means that funds that managed to cover their distributions from all three income sources opted to pay (ROC) anyway. This is the best of both worlds, a distribution covered by income and a little tax deferred income in the form of (ROC) to boot.

However, there are some funds that use (ROC) as an intentional part of their distribution strategy. The goal here is to pay a modest yield from income and an undetermined amount of tax deferred income in the form of (ROC). This is a useful strategy for investors who wish to minimize their taxable income now and pay the piper later.

The problem with this strategy is that it is dependent upon raising more and more capital. It's raising more and more capital because it is increasingly accumulating steeper earnings losses from paying out more than it makes to an ever-growing number of outstanding shares.

Then there are other funds that have no choice but to pay (ROC). This is the natural outcome of the scenario outlined in the paragraph above. Another cause can result from getting overly aggressive with the use of excessive leverage at the wrong time and being forced to turn unrealized losses into realized losses. From this point, distributions cuts or fund liquidation will occur when the fund gets absorbed, or merged, into another fund. This outcome is not inevitable, however. A fund always has the option to change course.

Understanding (RQNAV) Funds

BDC Scorecard

The BDC Scorecard is free to everyone who subscribes to this newsletter, which is also free. Click on the 'View content' button at the bottom of this page to be redirected to a .pdf download and enjoy.

The 'Divi-X' High Yield Portfolio

'Divi-X' and 'CEF Mastery' are two distinct and separate programs offered by 'The Dividend Times.' You do not need one to use the other. Both programs complement each other considerably well.

This portfolio was created solely for the purpose of this weekly update. It is real money. It is intended for informational purposes only.

Inception date: 07/19/23

Portfolio performance as of Today @ 11:21 a.m. Distributions are 'Not' reinvested.

The 'Divi-X' high yield portfolio is an aggressive use of the 'Divi-X' system. There are more conservative uses of the 'Divi-X' system that can have a very satisfying result on your returns as demonstrated in the following video.

The 'Divi-X' System - Dividends on Steroids

The 'Divi-X' system utilizes leverage and can be considered very risky. Use at your own risk! The 'Dividend Times' makes no claim that using the 'Divi-X' system will outperform the market.

Up until now, 'w/o Divi-X' and the 'S&P' returns have been running neck and neck. My recent sale of the funds (AIO) and (MPV), that had fantastic return rates (AIO - 73.66% 'w/o Divi-X,' 129.39% with 'Divi-X' and MPV - 21.84% 'w/o Divi-X,' 34.69% with 'Divi-X'), combined with the recent purchases of the funds (PCN) and (SCD) that have no returns yet to speak of is causing a momentary drag on overall returns for both 'w/o Divi-X' and 'Divi-X.' See attached report at the bottom for full details.

See attached portfolio performance download at the bottom of this report. Click on 'View content' to be taken to the download page where you can also download the 'BDC Scorecard' as well.

Questions or comments or always welcome.

Have a fantastic weekend.

Lee

TheDividendTimes@outlook.com

803-659-1232

None of the information contained in this newsletter should be construed as financial advice.

If you are a new subscriber, expect the 'CEF Mastery' Weekly Report to come out every Saturday.

Just a reminder that 'ETF Mastery' is free to 'CEF Mastery' subscribers while in its development stage.

If you aren't a subscriber, a free 'CEF Mastery Super Screener and Interactive Report' is available by entering 'Free Report' in the subject line of your email to the address TheDividendTimes@outlook.com.