BlackRock Science And Technology Trust: High Yield Tech Monthly Payer, 12% Dividend Growth

Jun. 06, 2020 9:15 AM ETBlackRock Science and Technology Trust (BST)55 Comments

Summary

BST yields 5.5%, pays monthly, and issues a 1099 at tax time.
It has a four-year dividend growth rate of 11.82%.
It's selling at a -.50% discount to NAV vs. usually selling at a premium over the past two years.
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Looking for attractive yields in the Tech sector? As we've often noted in our articles, high or even moderate dividend yields are hard to come by in the Tech sector. That's a shame, because it has been one of the best-performing sectors in recent years.

2020 has continued this trend in spite of the market crash due to COVID-19. Tech is once again the leading sector, having risen 7.4% year to date. That's a swell, but look at that 1.25% dividend yield? Can you live on 1.25% as an income investor?

The BlackRock Science and Technology Trust (NYSE:BST) is one way to solve the income problem and benefit from Tech. It currently yields 5.5%, pays monthly, and uses a Covered Call strategy to enhance its yield:

Mr. Market has taken a shine to BST; it has outperformed the broad SPDR Technology ETF (XLK) and the S&P over the past month, quarter, and year to date:

BST is a closed ended equity mutual fund launched by BlackRock. The fund is managed by BlackRock Advisors, LLC. It invests directly and indirectly through derivatives such as options in public equity markets of countries across the globe. The fund seeks to invest in stocks of companies operating across the science and technology sector. It invests in dividend-paying and growth stocks of companies operating across all market capitalizations. The BlackRock Science and Technology Trust was formed on 28 October, 2014, and is domiciled in the US.

Holdings

BST has 101 holdings, with very familiar Tech mega-caps in its top 10 group, such as Microsoft (MSFT), Amazon (AMZN), Apple (AAPL), among others. The top 10 holdings comprise 31% of its portfolio:

(Source)

Software & Services is BST's top sub-industry, comprising ~47%, followed by Semiconductors at 16%, Media/Entertainment 13.5%, and Retailing at 10.65%:

(BST site)

68% of BST's holdings are domiciled in the US, with China at 13.6%, its second largest geographical concentration. Three Euro zone countries form 8.5% of its exposure.

(BST site)

As implied in its top 10 holdings, large caps dominate the portfolio, with nearly 4X the %, 69.5%, that mid caps hold, at 18.3%. BST's portfolio holds 11% in small caps:

(BST site)

Distributions

BST pays monthly, which can be useful to income investors who are trying to achieve a smooth monthly cash flow. With the majority of high dividend stocks paying in Feb/May/Aug/Nov., it can be a challenge to construct an even monthly distribution flow.

At $36.19, BST yields 5.9%, with a monthly payout of $.1655. It has a strong four-year dividend growth rate of 11.82%. The big jump came in 2018, when the total yearly regular distributions rose 37.5%, from $1.28 to $1.76. Management raised the monthly payout again, from $.15 to $.1655 in December 2019.

In December 2019, BST paid a special $1.6852 distribution, based upon capital gains, in order to satisfy the fund's excise tax requirements. This was an outlier in size - the previous December's special distribution was $.08.

Taxes

For January-April 2020, BST's distributions have been comprised of 84% long-term capital gains with 16% return on capital. During 2019, its distributions were 100% capital gains with 0% return on capital.

BST issues a 1099 at tax time.

Performance

BST outperformed the S&P in each of the last three years, 2017 through 2019, and in 2015. It lagged in 2016, but still returned 9.3%:

(BST site)

As of 4/30/20, its total return from inception in October 2014 was 18.09%, with a three-year figure of 20.18% and one-year total return of 10.45%:

(BST site)

Pricing

One of the more dependable strategies when buying CEFs, closed end funds, is to try to buy them at a deeper discount to NAV than their historical discounts. The NAV figures have a one-day lag.

At $36.19, BST had a -.25% Discount/NAV, as of 6/4/20.

This compares favorably with its pricing since April 2018, but is not a huge discount.

In general, BST has sold at a premium a majority of the time over the past two years, with its premium/NAV running as high as ~10%-plus in 2018, and up to ~5% in 2019. Like almost everything else, BST sold at a discount in the March COVID crash. It bounced back to a 4-5% premium after that, but was selling for a slight -.25% discount/NAV as of 6/4/20.

(BST site)

All tables furnished by DoubleDividendStocks.com, unless otherwise noted.

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Summary

Holdings

Distributions

Taxes

Performance

Pricing

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