I\u2019m always shocked when dividend investors ignore tech stocks. Which means I\u2019m shocked a lot, because pretty well all income-seekers do it!<\/p>\n\n\n\n
That\u2019s because most folks still think of technology as the home of profitless startups, crumbling crypto platforms or zero-dividend names like\u00a0Tesla\u00a0TSLA<\/a>\u00a0(TSLA)\u00a0<\/strong>and\u00a0AmazonAMZN<\/a>.com (AMZN).<\/strong><\/p>\n\n\n\n But the truth is, big caps dominate the tech space, and on the whole, the sector is sitting on some of the biggest cash hoards on Wall Street.\u00a0Apple\u00a0AAPL<\/a>\u00a0(AAPL),<\/strong>\u00a0of course, holds a legendary $202 billion. As of February, that amounted to more than 7% of the cash holdings of\u00a0all<\/em>\u00a0S&P 500 companies!<\/p>\n\n\n\n Alphabet, too, holds north of $160 billion. MicrosoftMSFT<\/a>? $132 billion. The list goes on.<\/p>\n\n\n\n The problem? These companies are in no hurry to hand that cash over to us dividend investors. All pay low (or no!) dividends.<\/p>\n\n\n\n But there is a \u201cbackdoor\u201d way for us to tap these firms\u2019 cash holdings for big payouts. I\u2019m talking yields north of 5.7% here, and even as high as 8%.<\/p>\n\n\n\n Our route to these big, overlooked tech payouts runs through an oft-overlooked asset class called a\u00a0closed-end fund (CEF)<\/a>. These vehicles are a bit like ETFs, in that they trade on the open market, and many CEFs hold the household names we know well, including Big Tech.<\/p>\n\n\n\n But that\u2019s where the similarities end. Because unlike<\/em> ETFs, CEFs offer us big payouts, with yields of 7% and up common in the space. What\u2019s more, because CEFs\u2019 share counts remain roughly the same throughout their lives, they often trade at levels different than the value of their portfolios. These \u201cdiscounts to NAV\u201d are an inefficiency we can take advantage of.<\/p>\n\n\n\n Below I\u2019ve ranked three top high-yielding tech CEFs for you to consider now, ranked from worst to first in order of appeal. And thanks to the selloff we\u2019ve seen in the tech-heavy NASDAQNDAQ<\/a>\u00a0this year (which has only just begun to reverse with the recent bounce) we\u2019ve got a nice extra opportunity for upside in tech CEFs as investors begin to file back into the sector.<\/p>\n\n\n\n When it comes to CEFs, we demand an attractive valuation, a strong portfolio, good past performance and, of course, an attractive dividend.<\/p>\n\n\n\n STK certainly has what we want in its portfolio, which is full of strong cash flow generators like Apple, Microsoft, chipmaker\u00a0Broadcom\u00a0AVGO<\/a>\u00a0(AVGO)<\/strong>\u00a0and testing-equipment supplier\u00a0Teradyne\u00a0TER<\/a>\u00a0(TER).<\/strong>\u00a0It also ticks the performance box, with a 14.7% annualized return since it was launched in 2009.<\/p>\n\n\n\n But STK is<\/em> just a little light on the dividend front (for a CEF), with a 5.7% yield. However, we\u2019ll cut it some slack here because it does pay out the odd special dividend, including a recent payout to investors in January.<\/p>\n\n\n\n So if STK is such a great fund, why does it slot into my No. 3 spot? One word: discount\u2014<\/em>or lack thereof. As I write this, STK trades at an 11.7% premium<\/em> to NAV, so investors are actually overpaying for this fund. Worse, its current premium is well above the 2.25% premium STK has averaged over the last five years. That means you should put STK on your watch list now, but due to its high quality, be prepared to buy it on major dips.<\/p>\n\n\n\n The good news? Those dips happen regularly: the fund traded at a slight discount to NAV as recently as June 28.<\/p>\n\n\n\n Our next fund shares most of its ticker with its ETF cousin, the\u00a0Invesco QQQ Trust (QQQ),<\/strong>an ETF that holds all the stocks in the NASDAQ 100. But adding an \u201cX\u201d unlocks stronger recent performance and a\u00a0much<\/em>\u00a0higher yield (8% for QQQX, compared to a practically nonexistent 0.6% for QQQ).<\/p>\n\n\n\n Remarkably, QQQX delivers that outsized payout while holding the same stocks as QQQ\u2014all the big names of the NASDAQ 100. But it has a couple tricks up its sleeve that its ETF cousin can\u2019t counter. One is the fact that QQQX sells call options on its portfolio. This is a smart way to generate extra income, especially in a volatile market.<\/p>\n\n\n\n Under its call-option strategy, QQQX sells contracts that let buyers purchase its holdings in the future at a predetermined price. If the stock hits that price, it\u2019s \u201ccalled away,\u201d or sold to the option buyer, and QQQX keeps the cash it gets for selling the contract. If the stock falls short, QQQX keeps the cash and<\/em> the stock!<\/p>\n\n\n\n This savvy strategy, which works best in volatile markets, was the main reason why QQQX topped its ETF cousin coming out of the COVID crash. It\u2019s also why we can tap the fund for that rich 8% dividend.<\/p>\n\n\n\n The only snag, again, is valuation: although it\u2019s not as egregiously overpriced as STK, QQQX\u00a0does<\/em>\u00a0sport a 3.6% premium as of this writing, which is a touch above its five-year average of around 1%. That doesn\u2019t necessarily preclude a buy today, but you might want to wait for QQQX to dip below that 1% number before making a move.<\/p>\n\n\n\n Now on to my top pick among these three. BST is a familiar name to members of my CEF Insider <\/em>service, mainly because of its 8% yield and its monthly dividend, which has more than doubled in the last five years.<\/p>\n\n\n\n Like our other picks, BST holds high-cash-flow tech companies like Apple, Microsoft and Amazon, in addition to other growth stocks, like payment processors Visa V<\/a> (V)<\/strong> and Mastercard MA<\/a> (MA), <\/strong>whose vast networks (and the fact that they simply process payments, rather than loaning money) make them more tech than financial plays.<\/p>\n\n\n\n And we get another oft-overlooked advantage with BST: the management acumen of BlackRock, the world\u2019s biggest and most powerful financial firm. With over $10\u00a0trillion\u00a0<\/em>in assets under management, it has access to market data and changes in the global marketplace that no one else can match. BlackRock has translated that into strong market outperformance with BST.<\/p>\n\n\n\n Now it is<\/em> true that BST trades at a slight premium to NAV right now (0.7%, pretty much equal to its five-year average of 1%). So while we\u2019re not getting a huge discount upfront here, we still like BST\u2019s odds of posting strong price gains because it easily ticks our other boxes\u2014and especially because of the massive management advantage it has in BlackRock.<\/p>\n\n\n\n Here\u2019s something else to bear in mind: this one has traded at 9%+ premiums on a number of occasions over the last five years, and there\u2019s a strong chance it will hit those levels again as the tech rebound picks up.<\/p>\n\n\n\n <\/p>\n","protected":false},"excerpt":{"rendered":" I\u2019m always shocked when dividend investors ignore tech stocks. Which means I\u2019m shocked a lot, because pretty well all income-seekers<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[254,3421,3422],"tags":[888,3425],"_links":{"self":[{"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=\/wp\/v2\/posts\/10540"}],"collection":[{"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=10540"}],"version-history":[{"count":2,"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=\/wp\/v2\/posts\/10540\/revisions"}],"predecessor-version":[{"id":10542,"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=\/wp\/v2\/posts\/10540\/revisions\/10542"}],"wp:attachment":[{"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=10540"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=10540"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=10540"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}Look to Closed-End Funds for Big Tech Dividends<\/strong><\/h2>\n\n\n\n
Tech CEF Pick No. 3: The Columbia Seligman Premium Technology Fund (STK)<\/strong><\/h2>\n\n\n\n
Tech CEF Pick No. 2: The Nuveen NASDAQ 100 Dynamic Overwrite Fund (QQQQQQ<\/a>X)<\/strong><\/h2>\n\n\n\n
Top Tech CEF Pick: The BlackRock BLK<\/a> Science and Technology Fund (BST)<\/strong><\/h2>\n\n\n\n