How To Get Strong Dividends From FAANG
Contrarian Outlook | Jun 15, 2020 05:30AM ET
You can be forgiven for not looking to the big-name tech stocks for high dividends. Just look at this rogue’s gallery of pathetic payouts!
- Facebook (NASDAQ:FB): Dividend yield: 0%
- Amazon.com (NASDAQ:AMZN): Dividend yield: 0%
- Apple (NASDAQ:AAPL): Dividend yield: 0.9%
- Netflix (NASDAQ:NFLX): Dividend yield: 0%
- Google, a.k.a. Alphabet (NASDAQ:GOOGL): Dividend yield: 0%
Those are the so-called FAANG stocks—the darlings of the tech world. But they’re no place for retirees, or anyone else on the hunt for dividends. (Though there is one often-ignored way to get an 8.5% dividend from them; more on that in a second.)
Luckily for the folks who hold these stocks, which make up about 17% of the S&P 500, they’ve made up for their pathetic—or nonexistent—dividends in outsized price gains as the market has bounced back.
h3 Tech’s Roaring Comeback/h3Since the middle of March, these companies are up 30.1%, far ahead of the S&P 500’s 13% gain. That means the majority of the market’s gains are FAANG’s gains, and tech’s roaring returns have offset continued losses in other industries.
h3 An Uneven Recovery/h3It’s pretty undeniable that tech stocks are driving the market, but is tech driving the economy?
To answer that, consider how deeply tech is embedded in our lives, and how much that’s increased in the last few months.
The odds are high that you’re reading this on a device made by Apple or powered by Microsoft (NASDAQ:MSFT). The data coming to your device is probably managed by Amazon, Microsoft or Alphabet. And you’ve no doubt been watching a lot more Netflix lately. Maybe you’ve even switched to buying your groceries online.
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With productivity experts telling us that it takes only three weeks for a new behavior to become a habit, it’s safe to say a lot of us won’t be going back to the brick-and-mortar stores we used to frequent—or at least not nearly as much—and will stick with shopping from home. That’s one reason why tech isn’t just a growth sector; it’s the most important sector on earth.
h3 How to Get Strong Dividends From FAANG/h3So if you’re ready to buy FAANG stocks but want to squeeze a dividend out of them, here’s how to do it.
The first option is the route most folks take: buy an ETF that specializes in FAANG. This will give you these stocks at their market price, along with some diversification. That’s great, but a tech ETF like the Invesco QQQ Trust (NASDAQ:QQQ)) or the First Trust ISE Cloud Computing Index Fund (NASDAQ:SKYY) isn’t going to get you much income, since neither pays more than 1% in dividends.
You’d be far better off with the Columbia Seligman Premium Tech Growth Fund (NYSE:STK)) a tech-focused closed end fund (CEF) holding stocks from the FAANG group, such as Apple and Alphabet, as well as other essential tech plays, like Microsoft. Visa (NYSE:V) also appears in STK’s top-10 holdings—its vast payment network makes it something of a hybrid finance/tech stock.
STK pays an outsized 8.5% dividend yield as I write this. That’s 12.6 times more than you’d get from the aforementioned tech ETFs.
In fact, there is no tech-focused fund in the United States that offers a higher yield than STK. You can buy this fund, get a strong tech portfolio and hold on as STK’s market price rises—while drawing that huge 8.5% payout the whole time.
h3 My Top Tech Fund? A “No-Name” Pick With a Monthly 10.7% Dividend/h3The only problem with buying STK now is that it trades at a 6% premium to its net asset value (NAV). That’s another way of saying investors are paying $1.06 for every dollar of STK’s assets!
I refuse to overpay—even for a strong fund like STK. Why would we want to start 6% behind right out of the gate?
That’s why I recommend that you give STK a pass for now. Instead, look to another tech fund I recommended in the latest issue of my CEF Insider service. I want to share that issue—and the name of this breakthrough fund—with you now.
Here are the vital stats:
- My pick pays a lot more than STK: I’m talking a 10.2% current yield here—and that rich payout comes your way monthly!
- It’s cheap, at a 7% discount to NAV, setting us up for fast upside as that discount (inevitably) flips to a premium.
Like I said, the name of this fund is in our May issue, which you can get now through a no-risk 60-day “test drive” I’m offering today.
You’ll also get my latest report on 4 other high-yield CEFs I see as perfect buys for this pandemic: they yield an astonishing 9.4%, on average, now. Plus I’m calling for 20%+ upside in the next year—even if the market only rises marginally from here.
If stocks tumble? These funds’ bargain valuations will protect their share prices—and we’ll collect their fat 9.4% dividends the entire time!
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 ."
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