This week’s AI panic has opened up a rare bargain window in big tech names that were disposed of with the DeepSeek bathwater.
Nosebleed Nvidia (NASDAQ:)—which we warned about here and here—is a “stay away.” But there are tech dividends worth exploring, with some paying us up to 13% a year.
Investors have been herded into the same AI and technology names that have been at the forefront for years, and—shockingly—those shares have largely been priced for perfection.
Chinese AI upstart DeepSeek has shown that deep pockets are not needed to build smart AI models. This should have come as no surprise, as China is home to many smart technologists. Alas, the NVDA fanboys were stunned and sold immediately. These panics happen most often when specific stocks are overpriced.
The has long been one of the market’s priciest, trading at forward P/Es last seen before the 2022 bear market—which were only previously matched in 1999-2004 as the dot-com bubble expanded and burst!
This recent mini-dip has not made the sector-at-large cheap by any means. Instead we should consider lesser-known closed-end funds (CEFs), which allow us to buy many of these same bleeding-edge stocks for less than they’re actually worth.
Better still? They allow us to own them differently, in a way that emphasizes big regular distributions, sometimes as frequently as every month. In the case of these three tech-focused CEFs, that’s roughly 6% to 13% in annual distributions.
Columbia Seligman Premium Technology Growth Fund (STK)
Distribution Rate: 5.8%
If you didn’t look too closely, it’d be easy to mistake Columbia Seligman Premium Technology Growth Fund (NYSE:) with a traditional mutual fund.
A management team featuring Paul Wick, with a whopping 30 years of tech-sector experience under his belt, selects stocks based on “rigorous bottom-up fundamental analysis and valuation analysis, using a growth-at-a-reasonable-price (GARP) style to aim for more consistent performance and lower risk than its peers.”
The portfolio is a slim 55 stocks—70% of them are from within the technology sector, and the rest are “tech-esque” firms from the communication services, industrial, consumer discretionary and financial sectors. The GARP strategy shows, too, with the portfolio boasting P/E, P/B, and P/S ratios that are significantly cheaper than the category average.
And unlike many CEFs that use debt leverage to add some oomph to their picks, STK doesn’t use a dime of it—the assets they have are the assets they’re putting to work.
But you can’t own stocks like Apple (NASDAQ:), Broadcom (NASDAQ:) and Lam Research (NASDAQ:) and magically spout out a 6% yield. In STK’s case, that distribution rate is a mix of income, return of capital, and capital gains, with some of that generated by a covered call options strategy.
And That Distribution Does a LOT of the Lifting
But you get what you might expect from this Columbia CEF’s covered call strategy: On the one hand, it limits upside (STK trails the ’s technology sector by a decent measure over the same time frame), but on the other, you’re also getting a little better performance during downswings, market-beating performance, and substantial quarterly distributions.
However, while STK’s portfolio is cheaper than your average tech fund, we’re not getting much of a deal on the fund itself—it trades at just a 1% discount to NAV. That’s better than the 3% premium investors have paid on average over the past five years, but hardly a steal.
BlackRock Innovation and Growth Term Trust (BIGZ)
Distribution Rate: 13.0%
I recently highlighted this fund in a look at the market’s highest-yielding CEFs.
The BlackRock Innovation and Growth Term Trust (NYSE:) hones in on “innovative” mid- and small-cap companies that management determines have better-than-average earnings growth potential. Current top holdings include Taser maker Axon Enterprise (NASDAQ:) and tech electrical infrastructure firm Vertiv (VRT), but most noteworthy is that BIGZ can also own private investments you can’t own elsewhere (which it folds under cryptic names such as “Project Picasso”).
BIGZ does use leverage, but minimally—debt leverage is at less than 2% right now.
Instead, this BlackRock (NYSE:) CEF’s big yield comes courtesy of covered calls. Distributions have historically been entirely made of return of capital. And the fund actually mandates these distributions—its managed distribution plan requires BIGZ to dole out 12% of its 12-month average NAV through at least September 2025.
My colleague, CEF expert Michael Foster, wrote just yesterday that BIGZ was subject to a discount management program where the fund will offer to repurchase shares if its discount to NAV exceeds a certain threshold. However, amid a battle with activist investor Saba Capital Management, the company’s board of trustees has extended new tender offers to buy back 50% of BIGZ’s shares at 99.5% of NAV. This is an aggressive move that could help with the fund’s persistent discount, which has narrowed to roughly 6%.
That’s certainly helpful—but it’s a wide-open question as to whether that will be enough to make up for what has been an extremely disappointing strategy so far.
BIGZ Has Given Investors Little to Love
Neuberger Berman Next Generation Connectivity Fund (NBXG)
Distribution Rate: 9.2%
Thematic funds are typically found in ETF-land, but the Neuberger Berman Next Generation Connectivity Fund (NYSE:) is a compelling rarity among CEFs.
NBXG holds stocks that fund management believes to “demonstrate significant growth potential from the development, advancement, use or sale of products, processes or services related to the fifth generation mobile network and future generations of mobile network connectivity and technology.”
But a quick look at the portfolio shows that, at least as of right now, NBXG is a de facto AI play, too. Nvidia (NVDA). Taiwan Semiconductor Manufacturing (NYSE:). Amazon (NASDAQ:). Meta Platforms (NASDAQ:). These are just some of the top holdings that have their hand in the AI cookie jar. More broadly speaking, the portfolio is tech-heavy, with some telecoms, consumer discretionary, and other sectors sprinkled in.
NBXG, like BIGZ, offers something that most mutual funds and ETFs don’t: exposure to private companies, which make up about 13% of assets right now. And also like both the other CEFs here, a covered-call strategy helps keep an outstanding distribution afloat.
Performance? Well, Neuberger Berman’s CEF mirrors the previous two in that it has trailed the tech sector since inception. However, this strategy has shown a lot of promise over the past year, actually exceeding the XLK by an impressive clip.
This Tech Covered-Call Fund Outperformed in an Uptrend
What makes this all the more alluring is that you can buy NBXG’s assets for 87 cents on the dollar.
Disclosure: Brett Owens and Michael Foster are contrarian income investors who look for undervalued stocks/funds across the U.S. markets. Click here to learn how to profit from their strategies in the latest report, “7 Great Dividend Growth Stocks for a Secure Retirement.”
#Buy #Sale #Pay #Year
