This 60% Tech Yield Is Getting Attention (Is It Safe?)

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We all love high yields—but every now and then we run across one here at Contrarian Outlook that’s so high it’s a blaring warning sign.

Case in point: the 60.4% yield (no, I didn’t misplace a decimal there!) on a tech-focused fund called the YieldMax TSLA Option Income Strategy ETF (TSLY).

That’s right: buy this one and, going by the headline yield, you could recover your upfront investment in less than two years through dividend payouts!

But, well, not so fast: because in this case (as in pretty well all cases when dividend yields strain the bounds of reality), some income-hungry investors are being drawn to a high yield that not only can’t last, but masks poor long-term performance, too.… Read more

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You probably know the Don Henley song “Dirty Laundry.” It was one of my favorite tunes in the 1980s. A criticism of media sensationalism, the repetitive chorus rang in my ears when I was much younger than I am today:

“Kick ’em when they’re up,
Kick ’em when they’re down.”

This aptly describes the nightly news of the 1980s and the financial press of the 2020s.

In early 2022, for example, Business Insider kicked tech stocks as they were going down: “Rising interest rates and expectations of strong economic growth and inflation are all key factors in the sell-off” the site wrote then, mixing up the good (“strong economic growth”) with the bad (“inflation”).… Read more

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The first week of 2024 was a rough one for stocks—and that, oddly enough, suggests we might see a good year for stocks in 2024.

But as we’ll discuss below, recent market moves also suggest some parts of the technology sector are starting to look just a little overbought now—especially one 6.2%-yielding tech-focused closed-end fund (CEF).

I know that’s a lot to lead off with, so let’s break it down.

A week and a half before Christmas, and before last year’s Santa Claus rally, I wrote that we didn’t want a Santa Claus rally to end ’23. That’s because these year-end market bounces have historically led to the following year to be weaker for the markets.… Read more

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If you always wanted a free lunch but thought they don’t exist, well, they kind of do, in the form of the Fidelity group of ZERO index funds, like the Fidelity ZERO Total Market Index Fund (FZROX).

After all, its 0% fees mean it should easily beat a closed-end fund (CEF) with a high expense ratio, right? Well, not so fast.

0% Fees Do Not Equal Outperformance

FZROX—in purple above—may levy no management fee, but it’s underperformed many equity CEFs over a long period. Since inception, it’s trailed the Adams Diversified Equity Fund (ADX), in blue, and the General American Investors Co.Read more

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I hate to see investors get snared by so-called “rules of thumb” like the 4% rule (which we’ve debunked here on Contrarian Outlook many times before).

The trouble is, these rules only “work” until they don’t. And blindly following them through an unexpected market turn could lead you to investment losses, or to run out of money in retirement.

Heck, some don’t even have a germ of truth to them, like the “100 minus your age” rule, which says you should subtract your age from 100, and that’s how much of your portfolio you should dedicate to stocks. So if you’re 30 years old, 70% should go into stocks and 30% into bonds.… Read more

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It’s no secret that stocks—especially tech stockshave soared this year. And today I’m going to show you a contrarian dividend play I see as the perfect way to take advantage.

And before you ask, no, we’re not too late here, even though it may look like we are, in light of the NASDAQ’s 40% rise in half a year.

The key to unlocking tech-driven gains is not buying overbought darlings like Meta (META), Alphabet (GOOGL), Apple (AAPL) and Amazon.com (AMZN). Instead we’re buying through a closed-end fund (CEF) yielding an outsized 10.6% and trading at a 15.7% discount to net asset value (NAV, or the value of its underlying portfolio).… Read more

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You just can’t argue with the power of index investing, right?

After all, index funds boast ultra-low fees and simply track the market. And since stocks return about 7% per year on average, you should do well in the long run. Vanguard, founded back in 1975 on this very idea, built a massive firm (current assets under management: $7.2 trillion) on it.

And to be honest, for many folks, index funds do work. The company’s Vanguard S&P 500 ETF (VOO) is a go-to in the space, along with rival Select Sector SPDRs’ SPDR S&P 500 ETF Trust (SPY). (Though I always prefer VOO due to its lower fees; when you’re simply tracking the index, fees matter a lot.)… Read more

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Once folks get a taste of closed-end funds (CEFs), they typically rave about one thing: the dividends! Yields of 7% and up are common with CEFs, and they often come your way monthly.

We also love the fact that even though CEFs are a small corner of the market (with only about 500 or so out there), we can build a diversified portfolio with them: there are CEFs that hold US and international stocks, bonds, real estate—even private equity. You name it.

This broad range gets us around a problem most income-seekers face: being forced to stake significant sums in one, or a handful of, stocks just to get big payouts.… Read more

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Plenty of CEF investors worry about dividend cuts. And for sure, they’re something to keep in mind. But CEFs are not the same as stocks. When we invest in high-quality CEFs, there are a couple other things we need to remember when we catch wind of a cut:

  1. High-quality CEFs will sometimes reduce payouts by a small amount so they can redeploy capital into oversold bargains. I’ll have more to say on this in a moment, but the upshot is that it holds the potential for us to make more in gains from this move than we lose in dividends.
  2. As mentioned, these cuts are usually small, reducing the yield only a small amount (again, we’ll demonstrate this below).

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When it comes to closed-end funds (or any investment, for that matter), it pays to look for things most people misunderstand. Because these (seemingly) tiny investor oversights and errors can give us keen-eyed contrarians our best buying opportunities.

And when it comes to CEFs, there’s one all-too-common mistake I see folks make time and time again, particularly those who are new to these high-yielding funds. To see what I’m getting at, let’s zero in on a CEF called the Columbia Seligman Premium Technology Growth Fund (STK).

STK Romps to a Triple-Digit Return

STK’s portfolio mainly consists of large-cap tech stocks: Apple (AAPL), chipmaker Broadcom (AVGO) and Microsoft (MSFT) are among its top holdings.… Read more

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