I don’t always buy into stock bubbles. But when I do, I prefer dividend plays.
We can’t spell “mania” without AI, of course. Artificial intelligence has been the flavor of 2023. But what if—what if—the excitement around AI accelerates into 2024?
It could happen. Last week I spent half of a recent post-holiday-light-viewing dinner discussing AI with a friend. My buddy is increasingly looking to AI tools like ChatGPT and Bard to help run his services business. After all, why not—they are improving by the week and cheaper than humans. There is some steak behind the AI sizzle.
(What did we spend the other half of dinner doing? Shaking our heads at the unwatchable offensive display from his Pittsburgh Steelers. My man had the Thursday Night Football game on the phone while the kids colored.)
Not all humans are being replaced by AI. A contractor of mine recently asked me to sign up for ChatGPT Plus for him, so that he could scale himself and create more content. Perfect, I said, a fine use of $20 per month. Except for one problem.
ChatGPT Plus is currently closed to new users. What software company says “no thanks” to new business? Wild. I am currently on the waitlist to give this company my money:
LMK When I Can Give You Money, Thx
Meanwhile I came home early a couple of Fridays ago, and my wife is on a mastermind call with fellow tech executives. They’re talking AI and how they leverage their favorite tools. A newcomer called Pi got a shout out from one exec for its utility. So, I’m “chatting” with Pi as I write this article.
My first question to Pi—how much of ChatGPT does Microsoft (MSFT) own? My impression was that the software godfather had a 49% stake. Am I right, Pi?
My Convo with Pi
Source: pi.ai
Very political of you, Pi. But we all know that when you make a deal with the godfather, you must be prepared for offers you can’t refuse.
Recently, Microsoft announced that its search engine Bing will be handling web browsing “referrals” from ChatGPT. Talk about traffic that will create instant revenue!
Here’s how it breaks down. People like my friend, who has sole control of his company’s entire operating budget, uses ChatGPT more and more. Which means, going forward, he’ll be using Bing more and more to search for and buy products.
Cha-ching for Bing! Talk about valuable deal flow for the search engine owned by Microsoft. It’s still a distant second to Google, but Alphabet (GOOG) is on notice, as reflected by its passionate focus on its own “ChatGPT,” Bard.
Microsoft has been making smart moves like these for the past decade. That’s when Santya Nadella took over as CEO. He ended Steve Ballmer’s era of futility and moved the software firm away from personal computing (which was and is shrinking) towards cloud and business computing (which was and is growing by leaps and bounds).
Profits from Nadella’s cloud computing business Azure have powered MSFT’s dividend to the sky—a whopping 168% in the past decade. Like a good tech CEO, Nadella is always looking forward. He smartly invested in ChatGPT during its infancy, flipping the king of the tech dinosaurs into a full Jurassic Park-style rebirth!
MSFT’s Cloud and AI Profits Power Its Payout Higher
We added Microsoft to our Hidden Yields portfolio in October, anticipating an AI surge. Boy, did we get that! Our shares are already up 14.8% in less than two months, which annualizes to terrific 110% total returns, and there’s no reason we can’t see 24% or more in 2024 from Microsoft.
Some income investors will complain that the stock only yields 0.8% today. Fair enough, my dividend dudes. We can “fix” this problem by considering Nuveen Nasdaq 100 Dynamic Overwrite Fund (QQQX) instead. The fund’s portfolio is 13.2% MSFT and 5.1% GOOG, which nets us ChatGPT and Bard.
Plus, David Friar writes covered calls on these behemoths for additional income. MSFT and GOOG prices fly around quite a bit during the trading day, so the option premiums that sellers like Friar can net are nifty.
This is why QQQX yields 7.3%. And, get this, the fund trades at a 5% discount to its net asset value (NAV). Which means buyers are receiving MSFT, GOOG and other blue-chip tech stocks for 95 cents on the dollar. Sweet deal.
JPMorgan Nasdaq Equity Premium Income (JEPQ) is 8.7% MSFT and 5% GOOG for a 13.7% “combined score.” JEPQ’s portfolio manager Hamilton Reiner writes covered call options on the Nasdaq 100 index for additional income. The fund yields 10.3%.
And let’s not forget Global X NASDAQ 100 Covered Call ETF (QYLD)! I asked my new AI friend Pi: “JEPQ and QYLD are similar, right?”
Yep, you’re right! JEPQ also employs a covered call strategy, similar to QYLD. However, JEPQ’s portfolio manager writes call options on the Nasdaq 100 index, which could provide some additional diversification and potentially less volatility compared to QYLD’s strategy. Another important distinction is that JEPQ’s portfolio is heavily weighted towards Microsoft and Google, whereas QYLD’s portfolio is more diversified. Both funds offer high yields, but they do have some differences in terms of their investment strategy and underlying holdings.
As Pi smartly points out, JEPQ is more weighted towards the big tech names while QYLD is more diversified, though it still loves MSFT and GOOG to the tune of 16.5% of its portfolio. And QYLD, like JEPQ, writes covered calls on the Nasdaq 100 index for additional income. QYLD yields 11.3%.
4 Dividend Plays on AI Paying Up to 11.3%
Is the AI mania substance or puff? Probably a bit of both. But there’s money to be made as the hype train rolls on. Let’s do it smartly—with dividends.
I’m calling this moment The Great Reset because AI is part of an unstoppable new trend. Combined these “megatrends” will make some investors incredibly wealthy.
Unfortunately, those on the wrong side are going to struggle in their retirement.
As contrarians, we always want to be on the “right side” of big shifts like these. The Great Reset is the time to prepare our portfolios for a big economic shock—read on to learn more.
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