10 Percent Dividend investors have a rare window right now. The Liberty All-Star Equity Fund trades at its deepest NAV discount since COVID while yielding 10X the S&P 500.
This has to be the most quietly extraordinary stock-market run in recent memory. Glance at any major newspaper or cable news scroll and the story is the same: geopolitical tension, job fears, collapsing consumer sentiment. But behind all that noise, the S&P 500 has returned 31 percent over the past year. That is more than three times the market’s long-run average annual return of around 10 percent. And yet nobody seems to be celebrating.
For investors who rely on stocks for both growth and income, that disconnect raises two important questions. Is there more runway ahead — or has the market left everyone in the dust? And if more gains are coming, how do you position yourself to capture them while also collecting real cash income along the way?
The answer, according to investment strategist Michael Foster of Contrarian Outlook, lies in a corner of the market that most investors have never explored: closed-end funds, or CEFs. These are a small universe of roughly 400 pooled investment vehicles that, unlike conventional mutual funds or ETFs, trade on stock exchanges at prices that often diverge from the actual value of the assets they hold. That divergence is where the opportunity lives.
A Market That Runs While No One Watches
It is worth pausing on just how unusual the current environment is. The Strait of Hormuz remains closed, restricting global flows of oil and fertilizer. Consumer sentiment hit record lows in April. Headlines about job losses and trade disruption have been relentless. And yet corporate earnings have been climbing, powered in large part by the productivity gains flowing from artificial intelligence.
According to data from FactSet, profit margins at the end of 2025 reached their highest levels in years, with further expansion expected going into 2026. Meanwhile, data from Apollo Global Management suggest that workers switching jobs are likely to see significant income increases, a reflection of companies actively competing for talent. These are not the numbers of an economy in distress. They are the numbers of an economy that has run faster than the mood of its participants.
Thanks in large part to AI-driven productivity, profit margins have hit levels unseen in years — and more gains are forecast for the year ahead.”
The implication for stocks is straightforward: a 31 percent gain in the rearview mirror does not automatically close the door on future gains. If earnings continue to grow and capital continues to flow through the economy, there is a reasonable case that the market still has room to move higher. The mistake would be assuming that a strong past year means the opportunity is gone.
Why Closed-End Funds Give You a Hidden Discount
Here is where the story gets genuinely interesting for income investors. Most people buying into the market through index funds are paying full price — or close to it — for the underlying stocks. But CEF investors can sometimes get those same assets at a discount, simply because of how these funds are structured and who tends to buy them.
The CEF market is small. Only around 400 funds exist, and they tend to attract conservative individual investors who buy and hold predictably. That conservative base means the market for these funds is less efficient than the broader stock market, and discounts — where a fund’s shares trade below the total value of its holdings — open up regularly. For patient, income-focused investors, those windows are where the best deals appear.
Beyond the discount, CEFs offer something that index funds emphatically do not: serious dividend income. While the average S&P 500 index fund yields roughly 1 percent, many CEFs yield 9 percent or more. That means investors can collect the bulk of their return in cash — a critical advantage when markets get choppy and selling at a loss is the only alternative for income-seekers holding conventional funds.
The Fund Worth Watching Right Now
The specific fund Foster highlights is the Liberty All-Star Equity Fund (NYSE: USA). On the surface, it looks a great deal like owning a piece of the S&P 500 itself. Its largest holdings include names that will be familiar to anyone with a retirement account or brokerage statement: NVIDIA, Microsoft, Alphabet, Amazon, Visa, and Charles Schwab. Its sector allocations mirror the broad large-cap market.
What it offers that the index does not is a 10.3 percent annual yield — nearly ten times what a standard S&P 500 index fund pays. The fund achieves that by committing to distribute roughly 8 percent of its net asset value each year, paid in four quarterly installments of 2 percent each.
The payout is not fixed — it floats with the value of the fund’s portfolio — but in practice, it has been remarkably stable over the past three years. A fund that ties its distribution to the value of what it actually owns has built-in protection against the kind of dividend cuts that can ambush income investors in funds that promise a fixed yield regardless of market conditions.
A Discount That Looks a Lot Like COVID
The most compelling part of the case, however, is not the yield — it is the price. USA currently trades at a 10 percent discount to its net asset value. To put that in perspective: the fund’s long-term average discount is just 4.2 percent. That means investors buying today are getting roughly $1 worth of large-cap stocks for about 90 cents.
The last time the discount was this wide was during the early months of COVID-19 — a period that, in hindsight, represented one of the more extraordinary buying opportunities of the past decade. The fund recovered strongly from that low, delivering 216 percent on a total-return market-price basis over ten years.
The math here is straightforward. If the broad market continues to advance on the back of strong earnings and AI-driven productivity, USA’s portfolio gains. But investors also benefit if the discount simply reverts to its historical average. Both tailwinds can work simultaneously — which is the kind of setup income investors rarely get to see in a large-cap equity fund with a decade-long track record.
What the Skeptics Miss
It is fair to ask whether the gloomy headlines deserve more respect than this analysis gives them. The Strait of Hormuz closure is a real economic constraint. Rising uncertainty about jobs and spending can weigh on corporate revenue. These are not trivial risks.
But the historical record of equity markets suggests that sentiment and fundamentals frequently diverge for extended periods — and that the divergence usually resolves in the direction of the fundamentals. Companies posting record profit margins while wages and hiring remain healthy are not secretly fragile. The anxiety in the market reflects the headlines, not the underlying numbers.
For income investors, the practical consequence of all this is a rare combination: strong underlying assets, a 10-plus percent cash yield, and a discount pricing that treats this fund as though the sky were falling. That combination is hard to find in any environment. In an environment where earnings growth is intact, it represents the kind of contrarian opportunity that tends to be obvious in retrospect and uncomfortable in real time.
The structure of a CEF like USA means that patience is rewarded in multiple ways simultaneously. The quarterly income keeps arriving regardless of short-term market noise. The discount creates an embedded margin of safety. And the large-cap equity portfolio underneath it all is tied to some of the most profitable companies in the world. For investors who have been sitting on the sidelines waiting for a clear signal, this may be as close to one as the market is going to offer.