After a 30% decline this year, tech is the last sector that most people want to invest in – making it a great hunting ground for us dividend contrarian investors.
Even so, we need to be cautious in this Fed-scared environment, where near-term volatility is certain, so we will hedge our tech investments by focusing on a type of closed-end fund (CEF) that gives us the Next :
- A disproportionate dividend of 8% or more which can get us through tough markets without having to sell stocks, and…
- The ability to actually enjoy when the markets get tough.
We get these two rare assets in the Dynamic Replacement Fund Nuveen Nasdaq 100 (QQQX), a CEF that we will dive into in a few moments.
Let’s talk a bit more about the technology first, especially its long-term performance. Because while caution is in order in the short term, there are plenty of reasons to be bullish in the long term, including history.
As you can see below, the technology, exemplified by the performance of the NASDAQ benchmark Invesco QQQ Trust (QQQ), in purple below, has outperformed the benchmark S&P 500 ETF, in orange, over the past decade:
Tech stocks outperform all other sectors over the long term
I expect this trend to continue, making a purchase now, especially through a high dividend “hedged” fund like QQQX, a smart move.
Also consider that with a 30% drop from its all-time high, the NASDAQ 100 has now fallen even further from its all-time high than it did at the darkest time of the COVID-19 pandemic. , long before vaccines, effective drugs. or even an idea of the end of lockdowns.
This is absurd, given that we all use products and services from Apple (AAPL), Amazon (AMZN), Google (GOOG) and Microsoft (MSFT) more than ever. Obviously, the Federal Reserve is a big part of the story here, but it’s not the whole story. Because over the last few days we’ve seen technology start to stabilize, which makes sense when you look at the fundamentals.
The best companies at the lowest prices
Investors seem to be slowly realizing that the NASDAQ is too cheap, with a P/E ratio of 22.3 (second chart above), despite earnings per share rising at a rate of 13%. Similarly, the NASDAQ 100 P/E ratio is closer to that of the S&P 500 (which is around 19.3) than it has been in years, even though NASDAQ companies are showing growth earnings faster than the S&P’s more modest 4.1% growth rate.
So while everyone is getting upset about the Fed and inflation, which are serious short-term issues, they are throwing the baby out with the bathwater and selling some really good companies that are the cornerstones of the modern economy.
How to Take Advantage of Short-Term Tech Volatility and Prepare for Long-Term Gains
Now back to QQQX, because it can give you NASDAQ large-cap tech companies with a nice “sell discount” of around 30%, along with a bit of downside protection and a hefty $8 revenue stream. .9%.
Much of this income stream, as well as this decrease in volatility, comes from QQQX writing call options on its holdings and the fund holding the entire NASDAQ 100. These options give QQQX a flow of income it passes on to investors – and this income stream is directly related to volatility, as the more volatile the market, the more traders are willing to pay for these options.
Here’s how it works: QQQX management sells call options, which are essentially contracts where the fund sells the right to buy its shares from another investor at a fixed price in exchange for a cash payment. , called prime. This protects the seller from a downturn, as they can keep the premium no matter what, and the option expires if the stock falls below the set price.
If the stock exceeds this price, it is sold or “recalled”. This may limit the fund’s upside, as it will inevitably sell good stocks, but the fund retains the premium.
This strategy is now a good time to take a close look at QQQX as a way to play on short-term market volatility and then, in the long term, move into a “pure” tech CEF when the sector bottoms out and (inevitably) begins another recovery.
Our recession survival plan: 5 monthly payers earning 7.9%
QQQX is exactly the type of fund we want to focus on in a market like this, as it gives us the income we need to make it to the other side – and sets us up well for strong capital gains when we do!
That’s the beauty of investing in CEFs. And there is another advantage: many CEFs pay you dividends each month, online with your bills!
It’s a lifesaver these days, as it saves you from having to deal with a “lumpy” income stream. You always know your dividend income, down to the penny, month after month.
I’ve put together my top monthly CEF dividend picks in a new report I want to give you access to here. It has all the details on these strong funds, which are earning 7.9% as I write this and are also trading at outrageous discounts!
This special report for investors, containing the names, tickers and my analysis of each of these 5 high-yielding CEFs, awaits you now. Click here and I’ll tell you more about my CEF investment strategy and show you how to get instant access to your copy of this groundbreaking report.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.