Investors looking for market volatility can now tap into a cheap energy fund paying a 9.1% dividend. Contrarians have been waiting for this opportunity as the energy sector has seen a slow decline in recent months, with crude oil prices dropping approximately 10% since early April. Additionally, the Biden Administration is planning to empty the Northeast Gasoline Supply Reserve, injecting a million barrels of gas into the market just in time for the summer driving season.
The administration’s decision to sell from the Strategic Petroleum Reserve (SPR) to regulate oil prices has been ongoing for a couple of years now. While the SPR will need to be refilled, there is a likelihood that the government will become buyers after the election, potentially leading to higher oil prices. This presents an opportunity for investors to buy at a discount through closed-end funds like the Kayne Anderson Energy Infrastructure Fund (KYN), which currently offers a 15% discount to net asset value.
KYN holds oil and gas shippers and storers such as Williams Companies, Energy Transfer LP, and Enterprise Products Partners, providing investors with exposure to these companies at a lower cost compared to direct market purchases. By investing in KYN, investors can benefit from the discount-driven upside potential as the fund’s discount widens. In addition to potential gains from the portfolio holdings, KYN offers a 9.2% payout, the majority of which is delivered through dividends.
The high dividend offered by KYN has been growing since the early days of the pandemic-induced market downturn in 2020. Many of KYN’s holdings are master limited partnerships (MLPs), which typically present tax complexities at the end of the year. However, investors who buy through KYN will receive a simple Form 1099 instead of a complicated K-1 package, making tax reporting easier. By investing in KYN, investors not only benefit from a discounted rate and high dividends but also save themselves from potential tax headaches.
Overall, the current market conditions present a unique opportunity for contrarian investors to capitalize on the volatility in the energy sector. With the potential for higher oil prices post-election and the attractive dividend yield offered by KYN, investors can align their investment strategy to take advantage of these favorable conditions. By leveraging the discounts available through closed-end funds like KYN, investors can position themselves to benefit from potential gains in the energy market and secure a steady income stream for the future.
