We don't know for sure when this market will bottom, but I would say that now is a good time to buy dividend-paying stocks — especially if you use dollar cost averaging (DCA), which you probably used to build your portfolio, suggests Michael Foster, editor of CEF Insider.
DCA (or buying a fixed amount on a fixed date throughout the year, say) is particularly effective for high-yield CEFs. That's because of these funds' above-average dividends and deep discounts to net asset value (NAV, or the value of the stocks in their portfolios).
Investors who DCA into CEFs can slowly build their income stream over time, reduce their volatility and naturally grab big dividends and discounts, too.
To see what I mean, consider a CEF like the BlackRock Innovation & Growth Trust (BIGZ), a contrarian's choice if there ever was one. Buying this fund through DCA starting now gets your first buy in the door at a 10.2% yield and a 17.3% discount to NAV.
That might be a good strategy if you're hesitant to go all in on BIGZ, which I can understand, given that it holds small-cap tech stocks.
And while I see BIGZ as a good choice for a speculative play on an economic rebound, you should always hold a collection of CEFs with a diversified range of assets, such as blue-chip stocks, corporate bonds and real estate investment trusts (REITs).
BIGZ is a good buy for a short-term bounce at its current price point, but if you're looking to add small-cap techs to your (diversified) CEF portfolio now, either all at once or through DCA, I see bigger gain potential from the BlackRock Science & Technology Trust II (BSTZ).
First, it offers a bigger yield: BSTZ's 11.3% payout will entice more yield-hungry CEF investors, who I see buying in and narrowing BSTZ's 10.9% discount to NAV over time, propelling the price higher as they do.
And once the market stabilizes and investors again realize the central role tech is playing in our lives post-pandemic, I expect BSTZ to flip back into the premium it held back in 2019, when it first launched.
