The Big “Risk” Wall Street Got Wrong (We’re Cashing in With 8.6% Dividends)

Michael Foster, Investment Strategist
Updated: July 7, 2025

Maybe you’ve heard some variation on this fear in the last few years:

A lot of American companies are going to default on their debts.

I know I have. Frankly, pushing back on it was among the most contrarian calls I’ve made during my investment career. And it was tough to stick with. I’ve been in plenty of conversations with bankers, hedge fund managers and other Wall Street types who thought a default wave was right around the corner.

But it wasn’t. And it isn’t now—even though the fear remains. And we’re going to tap this ongoing misconception for a cheap (but getting less cheap every day) 8.6% dividend in just a second.

What I think many people tend to forget about this default panic is that it was once so prevalent that, in 2022 and most of 2023, it caused the market to heavily mark down high-yield corporate bonds (a.k.a. junk bonds).

High-Yield Bonds Took a Hit—Then Rallied in Late 2023

It never came to pass. As a result, we saw corporate bonds surge at the end of 2023, as you can see in the benchmark SPDR Bloomberg High Yield Bond ETF (JNK) above. And that surge in JNK has kept rolling, despite the April tariff selloff.

That’s put longer-term investors in a great spot. Junk? Not to them!

“Junk” Bonds Shake Off Fears

Not only did defaults not rise—they stayed in what I consider the “safe zone,” helping fuel demand for high-yield bonds.

Since COVID, we’ve seen business-loan delinquencies at around 1%, rising to around 1.3% over the last year. That rise is pretty much insignificant, historically speaking.

Defaults were lower in the mid-2010s, but interest rates were near zero then. Yet in the last few years, rates soared, then started to move lower—and corporate defaults still stayed relatively low.

And if you look at just the default rate for speculative-grade bonds—the worst-rated and most uncertain corner of the corporate-bond universe—defaults have been falling for a while now. Analysts expect them to fall even further throughout the rest of the year. That’s in large part due to an expected decline in rates, strong corporate profits and a surprisingly resilient US economy.

That positive outlook has, in turn, helped keep demand for high-yield corporates so high that they’ve spent most of 2025 outperforming the S&P 500—a rare feat indeed. And they’ve done it while showing almost no volatility.

Stocks Wobble, High-Yield Bonds Stair-Step Higher

With the stock market now fully recovered and starting to outperform high-yield bonds, it’s only natural to worry if this trade has gotten a bit crowded. But some new data from the New York Federal Reserve suggests that, in fact, risk in the corporate-bond market is near an all-time low.

Source: Federal Reserve Bank of New York

The Corporate Bond Market Distress Index (CMDI) isn’t well-known among most investors, but insiders know it as a reliable indicator of bond weakness.

After a recent small spike due to the tariffs, the CMDI is falling again and is at a historic low as of this writing. The New York Fed says this “improvement in market functioning is reflected in both the investment-grade and the high-yield CMDI sectors.” In other words, both low-risk and high-risk bonds are in a much healthier position than they used to be.

Many fund managers have known this for a while, so they’ve been buying up corporate bonds. Wealth managers have realized this, too, and have jumped in—helping shrink discounts for corporate-bond closed-end funds (CEFs). Today, bond CEFs have a 4.1% average discount to net asset value (NAV, or the value of their underlying portfolios) far below their average of around 7.5%.

A (Still) Cheap High-Yield Bond Fund Paying 8.6%

Some high-yield bond CEFs are bucking the trend with wider discounts. One is the Western Asset Inflation-Linked Opportunities & Income Fund (WIW), which has a 10% discount that’s been narrowing—moving closer to that 7.5% bond CEF average.

WIW’s Discount Shrinks

That narrowing discount isn’t the only thing the fund has going for it; with an 8.6% yield and 325 holdings, WIW has two other key strengths: broad diversification and a huge income stream.

WIW lowers risks even more than the typical CEF, which will likely shrink its discount further. One factor at play here is the fund’s focus on inflation-linked bonds. The vast majority of its holdings (now about 80%) are in TIPS, a kind of US government bond that pays out more income if inflation rises.

Now, hang on a second, you might be wondering. What about all of that corporate-bond risk? Exactly. Since WIW only holds about 20% of its portfolio in corporate bonds, it isn’t at risk if the corporate bond market suddenly worsens.

And if it does worsen, WIW may attract a flood of income investors seeking a safe haven—like US government bonds. That really should already be happening, since WIW’s total NAV return (the best measure of management’s talents) has been beating the corporate bond market and the S&P 500 in 2025:

WIW Beats Bonds and Stocks in 2025

These are a couple of reasons why WIW’s discount should shrink further. But even if that doesn’t happen, its portfolio value should keep rising as investors look for safety.

And if we see a tariff-driven rise in inflation, WIW should benefit again, since its cash flow rises with inflation. As a result, the fund is positioned to rise regardless of how the market moves, yet it trades at a discount more than double the average CEF bond fund!

This situation can’t last. The fact that it still exists makes WIW a great place to invest while the market catches up—and collect an 8.6% dividend while you wait.

Thursday 10 July
Amedeo Air Four Plus Ltd ex-dividend date
BlackRock Latin American Investment Trust PLC ex-dividend date
Cordiant Digital Infrastructure Ltd ex-dividend date
Invesco Asia Dragon Trust PLC ex-dividend date
JPMorgan Asia Growth & Income PLC ex-dividend date
Merchants Trust PLC ex-dividend date
Polar Capital Holdings PLC ex-dividend date
Schroder UK Mid Cap Fund PLC ex-dividend date
The Global Smaller Cos Trust PLC ex-dividend date
Volta Finance Ltd ex-dividend date

Not naval gazing, that’s a totally different topic for boys and girls.

The updated Snowball plan.

Current cash for re-investment £431.00, expected dividends £493.00.

Unless an unexpected event occurs, the Snowball will have to wait for August for any cash to be re-invested.

Top five most bought investment trusts in June

Moving onto investment trusts, June’s most-purchased trusts mainly saw more of the same, though we did have one intriguing new entry:

Top five most-bought investment trusts

1. Scottish Mortgage (SMT)

2. City of London (CTY)

3. JPMorgan Global Growth & Income (JGGI)

4. Greencoat UK Wind (UKW)

5. Tiger Royalties & Investments (TIR)

Source: AJ Bell, Bestinvest and interactive investor

What do you meme?

The most interesting addition to this week’s investment trust list is Tiger Royalties (TIR), which has featured on Kepler Trust Intelligence just once before. TIR combines a portfolio of small-cap mining companies such as African Pioneer and Galileo Resources, with a recent move into cryptocurrencies and artificial intelligence.

TIR recently acquired Bixby Technology, which itself aims to invest in technology enterprises, for £325,000. Bixby’s first purchase was AROK, which allows people to invest in so-called utility meme coins, which TIR says are a type of crypto asset built to represent the live fiscal value of a social movement. It then invested in TAO Strategies Singapore, which operates on the Bittensor blockchain network.

Shares have been on a rollercoaster ride in the past month, rising initially c. 450%, but falling by c. 50% since.

We’ll very quickly run through the top four, as they’re long-time favourites. Scottish Mortgage (SMT) continues to be in vogue, as it benefits from US growth stocks’ recovery post-Liberation Day.

Dividend hero City of London (CTY); and core, global equity income option JPMorgan Global Growth & Income (JGGI) rode high on the equity side, too.

Elsewhere, a renaissance in the renewables sector has kept wind farm owner Greencoat UK Wind (UKW) in demand. Shares have risen c. 20% since April – almost as much as some US tech stocks – to trade at a five-month high.

Reits are back – here’s how to take advantage

Published on July 4, 2025

by Val Cipriani

After three fairly abysmal years, real estate investment trusts are having a solid 2025 – the FTSE 350 Real Estate Investment Trusts index returned 11 per cent between the start of the year and 25 June.

But with interest rates only coming down at a snail’s pace, a flurry of corporate activity has done some of the heavy lifting for the sector.

Last week, Warehouse Reit’s (WHR) board recommended an offer from rival Tritax Big Box (BBOX), higher than the previously announced offer from Blackstone; in June, PRS Reit (PRSR) said it received a cash proposal from real estate investment management firm Long Harbour. And this is just the latest news.

Investors are being left with fewer options, particularly if they wish to access specialist areas of the sector.

Eating and being eaten

Nobody seems shocked that M&A is happening at pace. The UK-listed property sector has often been criticised for being too fragmented, and higher interest rates and shares trading at a discount to net asset value (NAV) have provided a catalyst for consolidation and dealmaking.

In theory, a consolidated sector is not automatically a smaller one, at least in terms of sheer asset value. Some think that listed buyers are actually better positioned than private equity buyers, as demonstrated by the bidding wars for Assura (AGR) and Warehouse Reit.

“Borrowing costs are so elevated that private equity funds, which typically use more debt than Reits for acquisitions, are now at a disadvantage,” says Edoardo Gili, senior analyst at Green Street. “Perhaps counter-intuitively, we therefore expect the Reit market to keep growing, as long as borrowing rates remain high in the UK.”

Some of the biggest Reits, particularly LondonMetric (LMP) and partly Tritax Big Box, are showing an “entrepreneurial” mindset, demonstrating focus and ambition to scale up. This is a pretty new approach in the UK market,” says John Moore, wealth manager at RBC Brewin Dolphin. The other big players in the sector might have to take note or risk being left behind.

Analysts also agree that there is more corporate activity to come. “There are too many small-scale and inefficient Reits in the UK that should be consolidated within broader companies,” says Gili.

On this note, it is worth keeping in mind that there are technically two types of Reits: trading companies such as LondonMetric, which are under the FCA listing category of “equity shares”, and those such as Tritax that list as “closed-ended investment funds”, and as such are covered by the Association of Investment Companies.

Most of the biggest players in the sector, including the giant Segro (SGRO), are in the first group, while the second category has been shrinking fast, as the chart below shows.

Cost disclosure rules, which campaigners argue have been contributing to discounts across the investment trust sector, would apply to the second group but not the first.

Meanwhile, private equity buyers are by no means out of the picture. Richard Williams, property analyst at QuotedData, notes that discounts still look wide – for example, as of 25 June, the average was 15 per cent for the AIC UK commercial property sector, and 11 per cent for the residential sector.

“With share prices where they are, there remains ample opportunity for private equity to bag more portfolios on the cheap and reap the benefits of the valuation uplifts to come at the expense of shareholders,” he says.

Read more from Investors’ Chronicle

If you had bought MRCH at the start of 2005 the price was 372p and the dividend was 18.3p a yield of 5%

The current dividend 28.4p a yield of 7.6% on buying price, current yield if you bought today 5.16%.

You would have sat thru thick and thin and there will always be plenty of thin.

You have achieved the holy grail of investing of having a share yielding 7.6% on buying price, producing income at cost of zero, zilch nothing if you took out your stake and also income from the re-invested dividends into your Snowball.

If you buy into a Investment Trust that owns shares to pay your dividends, you will buy into their enhanced dividend yield as in the earlier working example of CMPI which owns Investment Trusts to do the same.

Above are shares from CMPI, see below.

If you want to make a dummy portfolio to learn more about the Trusts in your Snowball, the above could be a good starting point.

Maybe avoid the really low yielders as they will be a drag on your income.

A target yield of around 7%.

7% because it double your income over ten years, if you can re-invest your dividends at 7% plus.

Here’s how £20k of savings could one day generate £841 of monthly passive income

A passive income plan built around investing in dividend shares could be a simple but potentially lucrative way to earn money without working for it.

Posted by Christopher Ruane

Published 5 July

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. 

One popular way to earn passive income is investing in shares that pay dividends. It is an approach that can be tailored to someone’s individual financial circumstances.

It can also be pretty lucrative, especially if that someone has patience to wait and adopt a long-term approach to investing.

As an illustration, here is how they could target a monthly average passive income of £841 from an initial investment of £20k.

How to calculate prospective passive income

Let me explain how I arrived at that number. It is based on an investor compounding £20k at 9% annually for two decades, then generating a passive income from it at a 9% yield.

That compounding could involve both capital gain and any dividends paid. Share prices can fall though, and that also would affect the overall performance, so the final figure is by no means guaranteed.

As for a 9% yield 20 years down the line, based on today’s market there are some quality shares yielding that much – but careful selection is important. Some shares have high yields because investors doubt that the dividend can be sustained.

Finding shares to buy

What sort of shares do I have in mind here? As an example, one I think investors should consider is FTSE 100 asset manager M&G (LSE: MNG).

For some years, it has had a policy of aiming to maintain or grow its dividend annually. It has recently simplified that to a policy of targeting annual increases in the dividend per share. I see that as a vote of confidence by the company’s board.

That is likely music to shareholders’ ears, especially as M&G already yields an impressive 7.8%. That is over double the FTSE 100 average.

The company has a number of strengths, including a large customer base, strong brand and long experience in asset management.

A recent tie-up with a Japanese financial services firm could help bring in more funds to manage. I see that as positive, because one of the risks that has been concerning me about M&G shares is that policyholders have been withdrawing more funds than they put in. That is a risk to profits.

Getting started

All shares have risks, of course. One simple way smart investors aim to mitigate them is to diversify across different shares. Twenty grand is ample to do that.

It is also important to choose high-quality shares trading at attractive prices. It can be hard to know whether shares really fit that bill. Like billionaire investor Warren Buffett, I therefore stick to businesses I feel confident I can understand.

It is all very well having a passive income plan – but how can someone turn it into reality? A useful first step, in my view, is to set up a way to put the £20k to work in the market. Actually, it is possible to start with less, but the passive income streams would be proportionately smaller.

To do that, an investor could compare some different options for a share-dealing account, Stocks and Shares ISA or share trading app.

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

This 14% Dividend Tells Us One Thing: The Smart Money Is BUYING America

Contrarian Outlook

Michael Foster, Investment Strategist
Updated: July 3, 2025

Well, that didn’t last long.

A few months ago, all we heard from the mainstream media is that the “sell America” trend was going to stick around for a long time.

Nowadays, we’re still hearing that. But one corner of the market—closed-end funds (CEFs)—is telling us something interesting: That investors are starting to turn their attention back to the US.

That’s given us an opportunity to front-run this quiet shift now, while it’s still early, with some high-yield CEFs trading at attractive discounts. In a second, I’ll walk you through the signal we’re getting from two of the biggest US-focused CEFs—one holding stocks, the other corporate bonds.

First, though, let’s talk about what the real data says about one of the biggest fears that’s been driving the so-called “sell America” theme—US debt.

This chart shows how much US households pay to manage their debt, as a percentage of disposable income. It’s the main evidence supporting the argument that fears about US economic stability are warranted.

To be fair, this chart does show a jump—about 10% in the last three years. In other words, yes, Americans’ debt costs are higher than they were in 2022. That’s a sure sign the US consumer is tapped out, right?

If this all sounds familiar, it’s because it’s the same story the press pushed in 2022, with headlines like “Consumer Debt Surges at Fastest Pace in 15 Years.” Three years later, the US economy remains strong. So maybe it’s going to finally falter now?

That’s what the Wall Street Journal has been saying. In March, it published a story titled, “Consumers Keep Bailing Out the Economy. Now They Might Be Maxed Out,” and another headlined: “Recession Fears Stoke Concerns Americans Are Overstretched.”

Now let’s look at a chart that starts to dispel this fear and tell us the real story here.

Household debt payments definitely rose from their all-time low in 2021. Now they’ve leveled off at around 5.5% of disposable income. That’s about where they were in the early 2010s. Today’s level is also far below the average in the 1980s, 1990s and 2000s.

In other words, Americans are not maxed out. In fact, their household-debt levels are quite low. According to IMF data, US households are less indebted than those in much of Europe and Asia, as well as Australia and Canada, both of which are places thought to be fiscally responsible.

At current levels of American disposable income (which is among the highest in the world) and debt levels (one of the lowest), the average US household is paying about $282 per month on its debt. That’s hardly a lot of money for most people!

It’s also worth pointing out that the average American family’s net worth had risen to $192,700 by 2022 (when the Federal Reserve did its latest survey), fully recovering from the Great Recession:

There’s a direct line between this financial improvement and the S&P 500’s world-beating long-term performance:

US Stocks Take On All Comers—and Win

Which brings me back to that indication CEFs are giving us that investors may finally be catching on to the strength of the US consumer.

To get at that, let’s look at a major corporate-bond CEF, the PIMCO Dynamic Income Fund (PDI), and the Nuveen S&P 500 Dynamic Overwrite Fund (SPXX). As SPXX’s name says, it holds the S&P 500, but it also sells call options—a low-risk way to support its dividend.

In a June 9 article on our Contrarian Outlook website, we talked about how SPXX and PDI work together to give an investor a nicely diversified “mini-portfolio” of stocks and bonds. We also identified an international fund, the Clough Global Opportunities Fund (GLO), as a less-effective way to diversify.

With CEFs, we have two measures of performance: total return based on net asset value (NAV, or the value of a fund’s underlying portfolio) and total return based on market price.

These can be different, with NAV a better measure of the fund’s portfolio management and market price a measure of the fund’s overall performance, subject to investor whim. When we look at the total NAV returns of the US-focused funds in the past year (SPXX, in orange below, and PDI, in blue), we see that they exceed that of the more global fund, GLO (in purple), by a fair margin:

US Stock, Bond Funds’ Portfolios Top Their Global Rival …

But if we pivot away from NAV for a moment and look at GLO’s total price return, we see that the global fund, GLO, has a far better performance, returning 15% (in orange below), far higher than the 6.4% return on its NAV (in purple) and indeed ahead of SPXX.

Here’s what’s really happening: Market demand for this fund is outpacing the fundamentals by a lot. That’s causing GLO’s discount to NAV to narrow (it’s now 11.7%).

Over time, investors will likely realize that fundamentals are underperforming market demand here and that, when compared to SPXX’s 7.6% yield and PDI’s 14% payout, both funds are better contenders than GLO to deliver strong total returns alongside a rotation back into America.

And that means there’s still time to profit from these two funds and avoid the growing possibility of underperforming by holding GLO, as that fund’s market-price gains run ahead of its fundamentals, potentially setting it up for a fall.

In short, the “pivot back to America” trade is wide open in CEF-land, where big (and often monthly paid) dividends are also on the table—if you stick to the data and ignore media fearmongering.

SPXX and PDI are both well-known, smartly run CEFs. You may actually hold one or both now.

If you do, great! You’re already enjoying strong payouts and are nicely positioned for gains as “sell America” fizzles.

Global managed has two Trusts.

CPMG which own Trusts the manager considers have the best growth potential.

CPMI which own Trusts the manager considers have the best income/growth potential.

Let’s research CPMI which currently yields 6.5%

Fourth Interim Dividend for the financial year ended 31 May 2025

CT Global Managed Portfolio Trust PLC (‘the Company’) announces a fourth interim dividend in respect of the financial year ended 31 May 2025 of 2.05 pence per Income share.   

This dividend is payable on 11 July 2025 to shareholders on the register on 13 June 2025, with an ex-dividend date of 12 June 2025.

The normal pattern for the Company is to pay four quarterly interim dividends per financial year.

For the full financial year ended 31 May 2025, total dividends have increased by 2.7% to 7.6 pence per Income share (financial year ended 31 May 2024: 7.40 pence per Income share).

Financial year to 31 May 2026

In the absence of unforeseen circumstances, it is the Board’s current intention to pay four quarterly interim dividends each of at least 1.9 pence per Income share and that the aggregate dividends for the financial year to 31 May 2026 will be at least 7.6 pence per Income share (2025: 7.6 pence per Income share).

Whilst it’s difficult to make a capital gain but not impossible, a steady income producer to provide funds to re-invest into your snowball, as you build up your knowledge of the portfolio shares held within the Trust.

If you are able to buy just before the next xd date, you could receive 5 dividends in a little over a year yielding around 8%, one of the safest dividends in the Investment Trust Universe.