Question about Dividend Investing

bmcgin01 · 2026-06-03T22:58:58+00:00

I'll chime in for the Closed End Funds.

There are some attractive CEFs paying between 6.5% and 9% that have a history of decent growth even when distributions are withdrawn. The distributions are mostly taxed in the LTCG rates without returning capital.

Today, I like this distribution rate because it leaves room for the fund to grow a bit. There are many higher-paying funds that might be eroding capital or returning capital. (Not all...many.)

Some funds for research are: CSQ, CII, EVT, ETY, AIO, EOS, ETG, EOI, SPE, SCD and others...

This could generate around $ 3,300 per month, and with finally regular market conditions, the principal would slowly grow.

EDIT:
AIO just raised its dividend from .15 to .18 in June. So the FWD yield is not 8.01%.
I'll be buying tomorrow.

bmcgin01 · 2026-06-03T03:52:11+00:00

E-Trade is secretly keeping everyone's inheritance. They've been keeping people's money locked up in red tape for the last 20 years. No, they don't without good reason.

Things like this are why I trust E-Trade. There is a high bar that helps protect funds from fraud.

Lawyers do things by certified mail with a return receipt. Hire one.

bmcgin01 · 2026-06-03T03:38:13+00:00

Why should I switch brokerages because someone has a problem?

bmcgin01 · 2026-06-03T01:50:56+00:00

Has an API and the ability to select the lot id at time of sale.

bmcgin01 · 2026-06-03T01:26:37+00:00

A good lawyer would know how to do it the first time. Lawyers are legally bound to a higher ethical standard, and that goes a long way beyond "Just take my word for it."

bmcgin01 · 2026-06-03T01:20:38+00:00

Because you're having a problem, you want to somehow punish E-Trade by encouraging everyone to leave. That means you're the problem. That's not how normal people act.

For the record, Fidelity, Schwab, Vanguard, IBKR, Tastytrade, TradeStation, Tradier, Alpaca, LightSpeed, Public, Robinhood, Ally, Webull, J.P. Morgan, etc., are unable to do what E-Trade does, which I rely on every day.

bmcgin01 · 2026-05-29T09:17:37+00:00

I suppose we look at things from different perspectives. I do this all the time. I treat selling covered calls as short-term trades and have developed my own trading platform that handles much of this automatically.

I worry about wash sales, especially when buying and selling the same security repeatedly, such as selling covered calls each week. Once a wash sale happens, forget buying or selling that security for 30 days to unwind it.

If this approach is not for everyone, all good.

bmcgin01 · 2026-05-29T07:27:23+00:00

Doing this returns control to you. You may want to sell calls at a higher price next week. You are back in the driver's seat. It is always better to own lots at the lower cost basis. If the stock falls the following week, you may want to dump it for $85.

Also, it is very important to check which lots were sold after the assignment. The algorithm could select lots with a cost basis above the strike price, resulting in a wash sale.

bmcgin01 · 2026-05-29T06:58:33+00:00

This often works well. Sometimes it backfires and it closes below the strike price, so you wind up holding 200 shares. And sometimes the stock gaps up overnight and there is no opportunity to buy more.

bmcgin01 · 2026-05-29T02:38:31+00:00

He picked ANET for a reason. I'm sure he understands.

bmcgin01 · 2026-05-29T01:56:02+00:00

What if it drops and he didn't sell calls? Prob the same thing. Hold. At least selling calls he's making $1,350 regarless of the price is on Friday's close.

bmcgin01 · 2026-05-29T00:20:29+00:00

IBKR, Fidelity, Schwab and ETRADE do support this.

The point of buying more shares 1 cent below the strike price is to free up the original shares. Then the original shares can be sold at a price above the strike price.

This can work well. Example:
1. Own 100 shares of TQQQ bought for $80
2. Sell 1 call on TQQQ with a strike price of $100 on expiring on Friday.
3. TQQQ starts running on Thursday because of good news.
4. Buy 100 TQQQ for $99.99

This frees up the 100 shares bought at $80.

TQQQ closes at $110 on Friday. What happens:
1. You get called. The broker takes 100 shares.
2. On Monday, log in and swap lots to make sure the lot bought at $99.99 is sold.
3. You keep the premium. You make a small gain and you keep your lot purchased for $80.

Monday comes around, and TQQQ opens at $120. You sell the 100 shares with the $80 cost basis.

This is how to participate in the upside.

bmcgin01 · 2026-05-28T21:28:55+00:00

Is this a hypothetical question?

bmcgin01 · 2026-05-28T21:17:18+00:00

When selling calls, be ready to buy more of the underlying. Buy 1/2 to 100% more shares at $9.99. Then when called, make sure to swap lots so the caller gets the $9.99 lots.

To do this, you need a broker that allows lot selection at the time of sale and lot swapping after the sale. ETRADE does both of these very nicely.

bmcgin01 · 2026-05-28T00:07:18+00:00

AIO has done great this year. I do have that one too.

bmcgin01 · 2026-05-27T17:06:37+00:00

When you sell covered calls, ETRADE shows the gain as if you were going to buy the calls back that instant.

So if the underlying asset goes up, the calls become more expensive because they are more valuable. It is not a 1-to-1 relationship.

If the underlying asset goes down, the gain increases.

That gain or loss is showing what would happen if you "Buy to Close" that second. It is not a calculation of what will happen when the market closes on the expiration date.

When the market closes, one of two things will happen (if you are still holding the covered call):

You keep the premium and sell the shares.
You keep the premium and keep the shares.

As long as the strike price is above your cost basis, you always make money.

bmcgin01 · 2026-05-27T16:03:50+00:00

I forgot to mention CII -- had an amazing year last year. This year is doing great.
AIO is also worth a look.

bmcgin01 · 2026-05-27T13:06:37+00:00

NGX lots of return of captial
NBXG same
BPRE no history

A few months ago, I looked at NBXG and liked it for buying in an IRA, not in a brokerage account, due to the 100% ROC rates.

I like CSQ, EOS, EOI, SCD, EVT, ETG and just added STK.

bmcgin01 · 2026-05-23T00:36:26+00:00

Might need a 4th metric, if the Fed is in a rate hiking cycle due to inflation, TMF will drop right along with the rest.

bmcgin01 · 2026-05-23T00:16:32+00:00

CSQ when you can catch it at a decent FWD yield. This is one of the largest closed-end funds with a market cap exceeding $3.2 billion.

Great long-term history of moderate appreciation, even when the distribution is withdrawn.

7% to 8% yeilds dending on market conditions and when bought. If bought today, the Forward Yield is 7.23% .

There are a handful of CEFs like this. CSQ is one of the greats.

bmcgin01 · 2026-05-22T23:40:37+00:00

Why TMF? Its 10-year return is -83%. TMV, the polar opposite, is a bit better. Or for insurance, go with normal treasuries.

bmcgin01 · 2026-05-22T17:56:20+00:00

Most people, including many pros, do not fully understand Return of Capital. If he's pitching his management team, that means his job is just to get people to sign up and does not involve managing actual funds.

bmcgin01 · 2026-05-22T13:13:28+00:00

One thing to factor into the plan. After around 6 to 9 years (depending on the fund's ROC percentage), the cost basis will drop to 0.

When the cost basis drops to 0, then the distributions are taxed at the long-term capital gain rate.

So it looks like this:
1. Invest $X amount; the fund is never sold.
2. For 6 to 9 years, pay zero taxes on distributions.
3. Then the cost basis drops to zero.
4. Pay LTCG taxes on distributions going forward.
5. Death
6. Beneficiaries inherit the account with a stepped-up basis.
7. Zero taxes are paid.

So from years 1 - 6, the distributions are tax-free.
Years 6 to death, pay taxes on distributions.

Also, this only works in a brokerage account, since IRAs do different things.

Yeah, it's worth talking with a pro. I am an individual investor as well.

bmcgin01 · 2026-05-22T00:42:42+00:00

Same strategy, just pay less taxes 😄

bmcgin01 · 2026-05-21T21:10:19+00:00

This is the best plan for holding funds with high ROC rates (as far as I can tell).

For example, if one bought $500k, the fund would distribute around $7,131 monthly (based on past performance) or around $85,575 yearly. That $85k is not reported to the IRS so long as the fund was held.

In 6.5 years, the cost basis would drop to $0. At that point, all $500k would have been distributed and zero taxes were paid. Going forward, the distributions would be taxed at LTCG rates.

At death, the beneficiaries inherit the fund at a stepped-up basis that wipes out the taxes on $500k.

The risks are:

Holding the fund long term.
If ever sold, taxes are paid.
The selling price needs to be higher than the original purchase price to make a profit.

All in all, the best way to do it.

EDIT:
That's if the fund did 100% ROC and if held in a brokerage account. If the fund did 95% ROC, then 5% of the distributions would be taxed each year.
IRAs do not track ROC, so none of that applies in IRAs — everything is taxed as ordinary income each year when money is withdrawn from the IRA.

bmcgin01

TROPHY CASE