The best closed-end funds (CEFs) pay generous but secure dividends, charge low fees, have solid long-term performance track records, and pursue simple investment strategies.
We ranked our top 10 closed-end funds for income investors. Each fund:
Yields between 5% and 15% (with low risk of a major distribution cut)
Pays distributions monthly
Has higher long-term total returns than 50% of peers
Has an expense ratio lower than 50% of its peers
Sports a 10-plus year performance track record
Our list of the best CEFs for 2023 includes some popular funds like UTG but also many you may not have known about. These funds span everything from vanilla equity strategies to covered calls and fixed income.
If you own CEFs in your portfolio or are looking for help researching ideas in this space, we provide Dividend Safety Scores, valuation charts, fund-specific data, research, and more for CEFs.
The first top closed-end fund on our list, the John Hancock Tax-Advantaged Dividend Income Fund (HTD) invests in a mix of common stocks (approximately 60% of assets), preferred shares (20%), and corporate bonds (20%).
Across its portfolio of around 100 holdings, HTD invests mostly in lower-risk dividend-paying stocks and the defensive utilities sector. The fund's exposure to the cyclical banking industry (nearly 20% of the portfolio) is mostly through bonds, reducing risk.
Source: John Hancock
This strategy has helped HTD pay mostly reliable distributions since its 2004, with its only cut, a 35% reduction, taking place during the depths of the financial crisis in 2009.
The main knock on HTD is the fund's higher use of leverage, which includes variable-rate debt. However, HTD's focus on dividends and its high mix of preferred stock and bonds generates reliable income that funds over half of its distribution (rather than relying on less predictable capital gains).
While high leverage has made the fund's returns more volatile, HTD's mostly stable NAV per share over the last decade indicates that its investment returns have been enough to earn the distributions it has paid.
Source: Simply Safe Dividends
For investors who can tolerate diversified CEFs with potentially bigger swings in their share prices, HTD has delivered impressive long-term returns alongside an expense ratio that's slightly lower than the average across all CEFs.
Source: Simply Safe Dividends
HTD shares could be timely as well since they are trading at an unusually high dividend yield and a slightly discount to NAV.
Source: Simply Safe Dividends
Best CEFs #9: Cohen & Steers Infrastructure Fund (UTF)
Category: Infrastructure
Dividend Yield: 8.0% Dividend Safety Score: Safe
Expense Ratio: 1.34%
Fund Inception: March 27, 2004
As its name suggests, the Cohen & Steers Infrastructure Fund (UTF) invests at least 80% of its portfolio in utilities, pipelines, toll roads, airports, railroads, telecom towers, and other infrastructure stocks.
Only one industry – electric utilities (~30% of holdings) – exceeds 10% of the portfolio. UTF also holds over 200 stocks, with around 40% from outside the U.S.
Source: Cohen & Steers
UTF's diversification and focus on businesses that generate predictable cash flow have helped the fund's volatility remain below most of its peers despite using leverage, which has boosted total returns over time.
Source: Simply Safe Dividends
UTF's dividend track record is also notable. While the payout was cut during the 2007-09 financial crisis, UTF has paid stable to rising dividends since those tumultuous years.
This stability partially reflects the high dividends paid by many of its holdings. Around 30% of UTF's distributions are covered by the fund's dividend and interest income net of expenses. This cash flow source is more reliable than fickle capital gains, which most equity funds have a higher dependence on to support their payouts.
UTF shares usually yield around 7% to 8% and trade near net asset value (NAV). The fund currently trades around these levels, suggesting it could be reasonably valued.
Source: Simply Safe Dividends
Best CEFs #8: Pimco Corporate & Income Strategy Fund (PCN)
PCN has flexibility to invest across much of the fixed income sector. The portfolio's makeup can opportunistically change but includes high yield credit (39% of total assets), non-agency mortgages (14%), bonds issued by foreign companies in developed markets (14%), and emerging markets debt (8%).
These are generally higher-yielding securities that mature within several years of PCN's purchase, boosting the fund's income over time when interest rates rise and maturing bonds are reinvested.
Nearly all of PCN's distributions are funded by interest payments (net of fund expenses) made by the fixed income securities it owns. Coupled with conservative use of leverage, PCN has never reduced its regular distribution since making its first payout in 2002.
The fund's focus on junk-rated debt has led to high volatility, but its total returns over the last decade have outperformed most of its fixed income CEF peers. And PCN's expense ratio below 1% makes it one of the cheapest options in the space.
Source: Simply Safe Dividends
That said, investors considering PCN should be aware that its reputation as a reliable income payer has resulted in a sticky premium to NAV near 20% over the last five years.
The best time to buy PCN is during downturns when junk-rated debt gets hit hard and the fund's premium can turn into a discount to NAV.
The DNP Select Income Fund (DNP) kicked off in 1987, giving it one of the longest track records of any closed-end fund. Remarkably, DNP's distribution has never been reduced over this period (though it hasn't been raised since 1997 either).
DNP's reliability reflects a conservative investment approach focused on utility, midstream, and telecom companies (none greater than 3% of the portfolio), all of which are known for generating stable cash flow and paying generous dividends themselves.
Source: DNP
The large dividends paid by DNP's underlying holdings make the fund less dependent on fickle capital gains to fund its distributions, and the defensive nature of utility stocks has made DNP's volatility over the past decade lower than practically every other equity CEF.
Source: Simply Safe Dividends
DNP shares usually trade at a premium to NAV, reflecting high demand for CEFs with reliable distributions, low volatility, and relatively cheap expense ratios. However, DNP's premium has persisted over time, providing some comfort for investors who are willing to accept this risk.
Source: Simply Safe Dividends
Best CEFs #6: Cohen & Steers REIT and Preferred Income Fund (RNP)
The Cohen & Steers REIT and Preferred Income Fund (RNP) invests in a portfolio split almost evenly between REITs and preferred stock. Besides these concentrations, the fund is reasonably diversified with approximately 300 holdings.
Source: RNP Annual Report
Aside from a large cut during the financial crisis, reflecting disruption in the financing market and a shock to preferred stock issued by stressed banks, RNP has paid reliable distributions since its inception 20 years ago.
The high-yielding REITs and preferred stocks RNP invests in have historically provided enough dividends (net of fund expenses) to cover over half of RNP's annual distributions. This reduces the fund's dependence on less predictable capital gains to cover its payout, promoting stability.
While higher interest rates and some turbulence in the banking sector could weigh on RNP's short-term performance and possibly necessitate a 10% to 15% distribution cut, the fund remains a decent opportunity for investors comfortable with moderate income volatility.
As you can see, RNP has delivered stronger total returns than most of its peers. This partly reflects RNP's somewhat more aggressive use of leverage to boost returns, but the fund's relatively low expense ratio has also helped.
Source: Simply Safe Dividends
Shares of RNP trade at a slight discount to NAV, about in line with their historical average, and offer a high yield north of 8%.
Source: Simply Safe Dividends
Best CEFs #5: BlackRock Health Sciences Trust (BME)
The BlackRock Health Sciences Trust (BME) invests primarily in U.S. large-cap stocks involved in pharma, biotech, life sciences, and healthcare equipment and services.
BME owns over 100 stocks but its top holdings carry somewhat bigger weights. These are mostly familiar businesses like UnitedHealth and AbbVie that are found in many dividend growth stock portfolios.
Source: BlackRock
Healthcare is known to be a defensive sector since many of its products and services are needed no matter how the economy is doing. BME further guards against downside risk by selling call options to reduce volatility in its portfolio, and the fund does not use any leverage to boost returns.
Despite this conservative stance, BME's total returns over the past decade have exceeded most of its equity CEF peers, and volatility has predictably been lower. BME's relatively low expense ratio near 1% is attractive, too.
Source: Simply Safe Dividends
While BME's dividend yield isn't as high as most of the other best CEFs highlighted in our list, the fund has never cut its distribution since its formation in 2005. And BME shares trade at a slight discount to NAV.
Source: Simply Safe Dividends
Investors considering BME just have to be aware of the risks of owning a fund concentrated in one sector. BME is best held as part of a diversified portfolio.
Best CEFs #4: Aberdeen Total Dynamic Dividend Fund (AOD)
Category: World Large Caps Dividend Yield: 8.2% Dividend Safety Score: Borderline Safe
Expense Ratio: 1.14%
Fund Inception: January 26, 2007
The Aberdeen Total Dynamic Dividend Fund (AOD) seeks high dividend income globally, holding a diversified portfolio of common stocks with around 40% of holdings located outside of North America.
Long-term growth of capital is a secondary objective and results in the portfolio owning some quality growth stocks with low or no dividends, such as Google (Alphabet).
Source: Aberdeen
AOD experienced several large distribution cuts from 2009 through 2013, bringing the payout to a much more sustainable level. In fact, over 80% of AOD's distribution is typically covered by dividend income generated by the fund's portfolio (and net of fund expenses).
Source: Simply Safe Dividends
As long as AOD's holdings, in aggregate, maintain a stable and growing stream of payouts, the fund's distribution has a decent shot at being sustained and is insulated from unpredictable fluctuations in stock prices.
AOD's risk profile is also reduced by its lack of leverage. This has helped keep the fund's volatility relatively low even though its total returns over the past decade have beat out most of its equity CEFs peers, aided by an expense ratio that's on the lower side.
Source: Simply Safe Dividends
Shares of AOD trade at a double-digit discount to NAV, though they have persisted at a similar level over the last five years. This dynamic further reduces the fund's risk profile.
Source: Simply Safe Dividends
The Reaves Utility Income Fund (UTG) is a very popular closed-end fund because it has the most consistent dividend growth track record of any CEF in our database.
Since its inception in 2004, UTG has not only maintained its distributions but has also consistently increased them over time. Most CEFs struggle to hold their payouts steady.
Source: Simply Safe Dividends
UTG's exceptional track record is attributed to the fund's focus on investing most of its assets in companies within the stable utility and communication services sectors.
In total, UTG has 50 holdings, including companies like Duke Energy, Comcast, and NextEra Energy that are popular stocks in dividend growth portfolios.
Source: Reaves
These businesses generally have predictable earnings streams due to their regulated operations, oligopolistic markets, and essential services.
Thanks to these factors and the sticky base of buy-and-hold investors that UTG's stable track record has attracted, the fund's volatility has been below most of its peers. Coupled with a similarly low expense ratio, UTG has delivered above-average total returns over the last decade.
Source: Simply Safe Dividends
Rate-sensitive stocks like regulated utilities have underperformed as interest rates have surged higher over the past year. UTG's yield has jumped as well. With shares also trading near NAV, UTG's valuation looks interesting.
Source: Simply Safe Dividends
Best CEFs #2: Eaton Vance Enhanced Equity Income Fund (EOI)
The Eaton Vance Enhanced Equity Income Fund (EOI) is a covered call fund. EOI owns approximately 70 stocks in its portfolio, which consists primarily of large-cap companies and mirrors the sector weights of the S&P 500 despite having fewer holdings.
Source: Eaton Vance
As a covered call fund, EOI writes options on around 50% of its individual stock holdings. This strategy, which we analyzed here, generates income from the premiums received. But selling covered calls caps the portfolio's upside.
The end result is higher income and lower volatility compared to owning the underlying stocks only. Yet, EOI has still outperformed the vast majority of its equity CEF peers.
This is partly attributable to the investment manager's success in identifying stocks that have "above-average growth and financial strength". EOI's relatively low expense ratio helps, too.
Source: Simply Safe Dividends
EOI shares usually yield around 7% and trade close to NAV, suggesting they are reasonably valued based on the fund's metrics today.
Source: Simply Safe Dividends
Best CEFs #1: BlackRock Utilities, Infrastructure & Power Opportunities Trust (BUI)
The BlackRock Utilities, Infrastructure & Power Opportunities Trust (BUI) follows a conservative investing strategy focused on owning around 50 large-cap stocks tied to essential businesses such as regulated utilities, pipelines, power generation, and even trash collection.
Source: BlackRock
BUI's portfolio is also diversified geographically, with nearly half of its holdings headquartered outside of the U.S.
Source: BlackRock
Further reducing risk, BUI writes options on a portion of the portfolio. While this limits the fund's upside in strong bull markets, writing options generates extra income and partially offsets losses when stocks decline.
Coupled with a refusal to use leverage, BUI's disciplined approach has enabled the fund to pay uninterrupted dividends since 2012 while delivering stronger total returns and lower volatility than most equity-focused CEFs. BUI's relatively low expense ratio is attractive, too.
Source: Simply Safe Dividends
While BUI's dividend yield isn't as high as some CEFs, the fund is one of the best CEFs for investors who desire predictable income and lower volatility in this space.
Source: Simply Safe Dividends
Closing Thoughts on the Best CEFs
Closed-end funds offer high yields for income investors. But many of their big payouts aren't safe due to aggressive distribution policies and riskier investment strategies that use leverage. High fees can add to the challenges.
The best closed-end funds shared here stand out from the crowd. If you own CEFs in your dividend portfolio, you might be interested in checking out our portfolio tracker and CEF research tools, which include most of the charts above.
