Jack Bowers, a leading specialist on the Fidelity family of funds, maintains several portfolios, inc...
BlackRock's New Play on Science & Technology
10/24/2019 5:00 am EST
New funds are rare in the closed-end fund (CEF) world. But there’s a new kid on the block throwing off a monthly 6% dividend, suggests income expert Michael Foster, editor of Contrarian Outlook.
I’m talking about the BlackRock Science and Technology Trust II (BSTZ), launched in mid-May of this year. The unique thing about BSTZ is right in its name: it’s no stodgy income play: its portfolio is packed with some of the fastest-growing tech plays out there.
I’m not talking about Apple (AAPL), Netflix (NFLX) or Facebook (FB). Instead, BSTZ focuses on off-the radar companies whose biggest growth lies ahead, like payment processor Square (SQ) and Twilio (TWLO), a communication platform many big companies already depend on.
Twilio is a great example. Its stock price has more than tripled since the start of 2018, and management feels there’s plenty more to come.
The next question is obvious: as none of these companies pays a dividend, what’s BSTZ’s plan for maintaining—and growing—its 6% income stream?
Simple: it will sell these stocks when management feels they’re overvalued and buy when it senses a bargain. The profits then roll out to us in the form of that 6% dividend.
The strategy works because these are the kind of firms that, despite their small size, rely on their own cash flow to drive growth. They’re also the kinds of stocks that can get overbought quickly, giving BSTZ’s tech-savvy analysts the chance to sell at a premium.
The concern here, from a dividend investor’s point of view, is also obvious: can BSTZ keep paying out dividends by rotating in and out of tech stocks? I think so, and expect big gains, thanks to its aggressive strategy of buying younger, faster-growing companies before the rest of the world is aware of their true potential.
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