This Unique China Play Gives Us 9.2%+ Dividends, Upside

We income investors don’t talk about international stocks nearly enough. That’s too bad, because there are ways we can use them to build a massive income stream and make our investments safer, too.

In fact, there’s one way, using high-yield closed-end funds (CEFs), we can “time” US and international stocks to get a 9.2% yield we can build over time by making simple moves to “rebalance” between US and overseas CEFs from time to time.

It all starts with China, because there’s a spark there that sets the stage for our 9.2%+ overseas payout strategy.

Chinese Stocks: 13% Yearly Gains Ahead?

Lost in all the talk around tariffs is the news that China announced a new stimulus package. Details won’t be known for a while, but the news boosted Chinese stocks.

Even though China hasn’t spelled things out, the package will likely resemble the quantitative easing we saw in the US in the 2010s (in response to the subprime-mortgage crisis) and 2020 (in response to the pandemic).

Both packages paid off for US investors, with the S&P 500 gaining 13.0% annualized in the five years following the first stimulus move and 84% in the two years following the pandemic-driven move. The post-2020 gain stemmed from US stocks crashing and then quickly recovering in a once-in-a-century event, so let’s set that aside.

Which leaves us with the question of whether Chinese stocks could rise by a 2010s-style 13% annualized clip for the next half-decade.

To answer that, we first need to note that Chinese stocks have dropped nearly 50% since their 2021 peak, providing a seemingly good entry point for a contrarian investor.

Chinese Stocks Tank

We also see some bouncing back as China acknowledges the need to prop up its economy, again suggesting a good entry point.

Since we’re CEF investors, we might look to tap into this with a fund like the China Fund (CHN), whose 16.3% discount to net asset value (NAV, or the value of its underlying portfolio) as I write this makes the Chinese assets it holds even cheaper.

Chinese Assets at a Widening Discount

Unfortunately, CHN has been getting cheaper despite the recent boost to Chinese stocks. Again, this sounds like an ideal setup for a value investor, but it isn’t. Fact is, we’ve seen this movie before. In the past, China’s attempts to stimulate its economy didn’t do much.

In 2016, following a crash in its stock market, China’s government tried to prop up assets, and that did drive a 21.7% gain over the following year. But since then, the Chinese market has posted a 3.5% annualized return, as the stimulus couldn’t overcome the disadvantages of a closed, substantially government-controlled economy.

Kudos to CHN for outperforming the index, but its talented managers could only squeeze out a 5% annualized return over that time. That’s not a lot better than a much safer high-yield savings account in America.

An International Alternative?

Still, with the recent run-up in US stocks, it’s a good time to add some international exposure. But we’re not going all-in on China. Instead, we’re going to hedge our bets on the country with a more diversified international fund: the BlackRock Enhanced International Dividend Trust (BGY), a holding in my CEF Insider service.

Two Negatives and a Positive

This chart speaks volumes. While CHN (in orange) and Chinese-stock benchmark MCHI (in purple) are down in the last five years, BGY is up an annualized 7.4%. Plus, BGY recently announced a hike to its monthly dividend and will yield a high 9.2% annualized, based on the new monthly payout, so investors have essentially gotten their entire return in the form of dividends.

With that in mind, we can make timely shifts between US and international stocks, potentially enhancing our safety, gains and income as we do.

Let’s say we pair BGY with something like the all-American Liberty All-Star Equity Fund (USA). When US assets fall, you can take your payouts from BGY and put them into USA. You can also do this in the other direction, using USA’s high dividend (9.9% as I write this) to invest in overseas stocks when they’re down.

This way you’re maximizing your diversification and building a huge income stream. That beats what many investors do: Buy an international ETF that yields little, and a similarly low-yielding US fund. The result? Volatile price swings from both—and no way to rebalance frequently without selling your shares and trying to time the market.

Add AI—Yes, AI!—to Our CEF-Powered Dividend Strategy (for 9.8% Yields)

International stocks are far from the only “non-S&P 500” markets we can tap through CEFs.

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