How To 2X Your Dividends And Grab 10% Upside In Any Market

Stocks are pricey, but we closed-end fund (CEF) investors aren’t sweating it: we’ve got an edge that lets us buy at a discount, with dividends that are double—and sometimes triple—the typical S&P 500 payout!

That would be our ability to buy CEFs that trade at discounts to net asset value (NAV, or the value of their underlying portfolios). This simple move lets us “rewind the clock” and essentially buy the stocks our CEFs hold at levels we could a few months ago on the open market.

(And there are many bargain-priced CEFs to be had out there, including one trading at a 10% discount and paying more than double the average stock’s dividend—more on that below.)

The One Thing About Today’s Market Everyone Overlooks

Yes, there are plenty of reasons to buy into this market, not the least of which is the fact that investors are focusing solely on valuation measures like the S&P 500’s price-to-earnings (P/E) ratio, which stands at 27 as I write this, well above its level of 22 at the end of 2019.

Trouble is, most folks stop there and overlook the fact that the economy is growing strongly and is set to keep doing so. That will inflate corporate earnings and narrow the gap between the “P” and the “E” in our ratio—setting the stage for more gains as it does.

Let’s dive into the latest numbers to see how this is likely to play out, before we swing back around and talk more about CEFs, including the one I mentioned a second ago.

Earnings Pop—But From a Low Base

To be sure, today’s higher P/E ratio is at least partially justified by the latest earnings coming out of S&P 500 companies. So far, 80% of firms that have reported their third-quarter results have posted profits above analysts’ expectations. And overall earnings have grown by an average of 30% year over year.

Earnings Surge Past Estimates

Bear in mind, too, that earnings season has only just started: estimates call for 40% higher profits for all of 2021 as they bounce from the low floor of 2020, when lockdowns and tight pandemic restrictions battered corporate bottom lines.

The low 2020 floor meant this big earnings jump was expected, and it got started in March, so it’s no surprise that stock prices have been rising. But have stocks gone too far, hence the dip in recent weeks? In other words, has all of 2021’s earnings growth been priced into the market?

The real issue here is whether we can expect earnings to keep rising strongly in the next few years, thus justifying that higher P/E ratio. GDP growth—the factor that most P/E ratio–obsessed investors overlook—helps answer that question.

Rising Wealth for the Foreseeable Future

The IMF estimates expect 3.5% economic growth in the US next year, meaning we’re not…