Still wondering if AI will replace human workers? Well, you can stop. Because it’s already happening—and boosting corporate profits (and AI dividends!) as it does.
That’s tough news for workers, of course. But there’s a silver lining for those of us investing for dividends. Because the “growth-without-hiring” trend AI has touched off is setting up one of the strongest income opportunities I’ve seen in years. (I’ll name three AI plays yielding up to 8.5% below.)
Wait, AI is setting the stage for big dividends?
I know. AI is known for a lot of things—many of which have been, er, less than helpful, such as infringing on copyrights and forcing McNuggets on pleading McDonald’s (MCD) drive-thru customers.
But dividends? Most people will tell you that AI stocks are a dividend desert. They’re not exactly wrong. NVIDIA (NVDA), Microsoft (MSFT), Alphabet (GOOGL) and Meta Platforms (META) pay somewhere between nothing and almost nothing.
But we contrarians know to look deeper. For starters, the real AI magic isn’t in chatbots like ChatGPT. That’s surface-level stuff.
It’s in applications, like the FedEx (FDX) Surround system, which uses AI to monitor and shift, if necessary, time-sensitive shipments.
It’s in Meta’s recent proposal to use AI to run entire ad campaigns (including creative) based on an image of a client’s product and a budget. That could let smaller businesses access agency-level marketing, boosting their profits (and Meta’s, of course!).
Tech (Once Again) Points the Way for Other Sectors
As we mentioned earlier, yes, these changes will result in fewer hires. That’s already showing up in the numbers: Over the past year, Meta, for example, has raised revenues by 22% while only hiring 10% more people.
Alphabet grew revenues by 14% without any net new hires. Sure, NVIDIA did grow headcount by 13%, but for good reason—sales exploded by 126%! Microsoft, meantime, saw 16% revenue growth on just a 3% headcount increase.
Tech firms are the thin edge of the wedge here. Other companies are going this way, too. This is where dividends come in because we can easily buy this trend through closed-end funds (CEFs) that:
- Pay big dividends (of course)!
- Offer big discounts to net asset value (NAV, or the value of their underlying portfolios) and …
- Have portfolios sporting AI providers and AI integrators.
Here are three you can blend to get this sweet income (and gain!) setup. We’ll start with a “pure” tech fund and move through to one focused more on AI users than providers.
AI Dividends #1: Columbia Seligman Premium Technology Growth Fund (STK)
The Columbia Seligman Premium Technology Growth Fund (STK) focuses on tech stocks, with Broadcom (AVGO), Microsoft, NVIDIA, Alphabet and Apple (AAPL) among its top holdings. STK also holds Visa (V) and fuel-cell-maker Bloom Energy (BE). Let’s call those “tech-adjacent.”
STK sells call options on part of its portfolio, which generates extra income to support its 6.3% dividend. This strategy works well with tech stocks, as they tend to be more volatile. Moreover, portfolio manager Paul Wick has 38 years of experience and it shows: In the last five years STK’s total return has outpaced the NASDAQ, which we all know has been on a tear:
One thing to remember is that STK is on investors’ radar, so it trades at a premium to NAV. But that premium is well below the peaks it’s hit in recent years, making STK something of a bargain in disguise.
That premium could turn some folks who don’t know STK’s history away, providing an opportunity to step in.
AI Dividends #2: Nuveen NASDAQ 100 Dynamic Overwrite Fund (QQQX)
The Nuveen NASDAQ 100 Dynamic Overwrite Fund (QQQX), as the name says, holds NASDAQ stocks. But unlike index funds, it pays a big dividend: 8.5%. Like STK, QQQX fuels its payout, in part, through option sales.
QQQX’s portfolio of NASDAQ stocks includes the tech kingpins, plus firms like travel site operator Booking Holdings (BKG) that also benefit from “growth without hiring.” The fund’s 5.7% discount gives us another tailwind as it narrows and (likely, in my view) flips to a premium—something it’s long overdue for:
Now let’s add more “tech-adjacent” holdings with …
AI Dividends #3: Gabelli Dividend & Income Trust (GDV)
The Gabelli Dividend & Income Trust (GDV) rounds out our trio with a focus on innovators from across the economy—particularly finance stocks—set to cash in as they integrate AI into their businesses. Top holdings include Mastercard (MA), JPMorgan Chase & Co. (JPM) and American Express (AXP).
GDV yields 6.5% and is the steadiest payer of the bunch, with a payout that hasn’t been cut since the 2009 financial crisis. The fund’s discount has been stuck in double digits in recent years, but it has been narrowing lately.
I expect that discount to keep shrinking as AI optimizes sectors like finance. That would slingshot the fund’s price higher, adding gains to that 6.5% payout.
Brett Owens is Chief Investment Strategist for Contrarian Outlook. For more great income ideas, get your free copy his latest special report: How to Live off Huge Monthly Dividends (up to 8.7%) — Practically Forever.
Disclosure: none
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