12% Dividend Yield? What's Not to Love?

Fund manager Abby McKenna recently told brokers during a conference call that nothing that has happened since the IPO has caused her to change her dividend expectations.

Yet today you have to pay only $16.60 a share to get those $2 dividends. Yield: Just over 12%. And if anything, you're as likely to do better as you are to do worse. The bonds in the fund's portfolio have an average yield to maturity of 13%.

I hate to repeat myself, but there is nothing boring about a profit: Closed-end funds offer the best values in the current selloff. These funds are like mutual funds, except they issue only a fixed number of units when they are launched. Anyone who wants to invest simply goes out and buys those units on the stock exchange, like a share in a regular operating company. As I wrote here Monday, many of those shares have collapsed, falling well below the underlying per-share value of the funds.

There's no such thing as a free lunch, but this is close. A free snack, maybe.

All investments have risks, and of course this fund is no exception. They include the risk of foreign exchange volatility, as the fund invests in bonds that pay interest in foreign currencies. There is also political risk in some emerging-market countries. The fund's biggest positions are bonds issued by the governments of Brazil, Turkey, Mexico, Hungary and South Africa. It invests with borrowed money equal to 30% of assets.