From Dec. 5 through Dec. 16, the S&P 500 was knifed for 4.8% to the downside following the trap-door selloff in oil prices. At just the point when the bottom looked like it was going to fall out, two events took place where investor sentiment got a hold of itself.
The Federal Open Market Committee (FOMC) meeting produced a hugely market-friendly forward fiscal policy statement, and market participants surmised that cheap energy was, in fact, a major positive for global economies.
And thus the “whoosh down” turned into the “whoosh higher” that sent the S&P above its 2,075 high of the year.
As the equity markets have righted themselves, one of the clear leading sectors on the rally back is technology. Revenue and earnings growth for 2015 should be fairly robust, as capital spending on IT and network and enterprise upgrades are expected to be at pre-2007 levels.
Being that most tech stocks pay little (if any) dividend income, I’ve located a buy/write closed-end fund that invests 100% in technology stocks and utilizes a managed-distribution program in which quarterly payments are a function of short-term gains, long-term gains and option income.
At present, the Columbia Seligman Premium Technology Growth Fund, Inc. (STK) pays out a yield of 9.6% based on its latest declared dividend of 46.25 cents per share, announced on Nov. 7.
Below is a table of the composition of that dividend and provides guidance as to how future dividend payments will be manufactured. This technology fund should be considered an aggressive holding, but one that I am very favorable to because I recommend owning a pure technology component in your income portfolios at this time.
The STK fund has a market cap of $288 million, trades at a 5% premium to net asset value and uses no leverage to produce a total return of more than 33% for 2014 to date.
Clearly, the tech sector is delivering enough gains and call premium to cover the distributions…and, with the tech fund being now in its fifth year, the management team appears to be meshing well with the market — as the one-year chart above would attest — while being able to pay out a double-digit yield that’s not a function of a return of capital.
That could change in 2015, but with 2014 being a very difficult year to maneuver for active managers, I’m willing to recommend this fund and look for more gains and income. STK is a buy under $19.
Bryan Perry is the editor of Cash Machine, a newsletter focused on high-yield income investing with the goal of maintaining a blended total yield of 10% across two portfolios. And most recently, Bryan introduced Cash Machine Trader. With this service, he’s increasing the income stream potential even further by using covered call writing strategies to generate yield in the form of option premium — on top of capital appreciation income from well-known stocks.