A nifty dividend duo—with yields of 9% and 12%—is ready for takeoff. Thanks to Uncle Sam’s spending bender, coinciding with the rise of the machines.
Big tech stocks are about to remind Wall Street why it fell in love with these shares in the first place. Think you’ve seen a tech bubble before? Just wait until tech firms report earnings later this month!
These companies are growing sales and profits by deploying robots instead of hiring humans. Their AI-driven tools are faster, more scalable, and much cheaper than carbon-based labor. Cost savings are dropping straight to tech bottom lines.
Expect proof of trend as the ’s increasingly machine-driven companies report banner earnings in the coming weeks.
Meanwhile, Washington’s $3+ trillion fiscal “open bar” is officially flowing. Policymakers saw a negative print in Q1 and have rapidly revved up the stimulus spigots to avoid a technical recession. Nothing creates market excitement like stimulus cocktails ahead of midterms.
As we approach election season, the Fed is under pressure. Will Fed Chair Jay Powell last his final 10 months? I wouldn’t bet on Jay—not when Treasury Secretary Scott Bessent stands ready to step in and potentially lower the Fed Funds Rate by 300 basis points almost overnight. Talk about bullish fuel!
This backdrop makes us contrarian bullish on stocks, with a twist. We could buy and hope for higher prices, but why? Instead, we can engineer dividend yields of 9% and 12% simply by “selling volatility.” To do this, we consider covered call funds, which manufacture sweet synthetic dividends with upside price potential to boot.
Take Christopher Dyer of Eaton-Vance Tax-Managed Global Diversity Equity Fund (NYSE:). Chris owns significant stakes in Alphabet (NASDAQ:), the owner of Waymo, the autonomous “robot” car company. My kids couldn’t stop talking about it after our recent San Francisco trip.
Alphabet itself is becoming “autonomous.” Human hiring has halted. Yet despite flat headcount in the last year, revenues still grew by double digits—14%!
Surviving highly-paid “Googlers” are understandably anxious. They developed Gemini, Alphabet’s AI tool, now being deployed enterprise-wide to automate countless tasks. Yes, they created their own monster.
Chris’s next big holding for EXG is Amazon (NASDAQ:). CEO Andy Jassy openly acknowledges that Amazon’s workforce will shrink over the next few years. Today may well be “peak headcount!”
Microsoft (NASDAQ:), Chris’s largest holding, laid off 6,000 employees in May and another 9,000 just last week. Yet Microsoft isn’t downsizing. It’s upsizing efficiency by rolling out its AI-driven sales and marketing teams, creating “driverless” departments that are equally effective and far cheaper.
Tic tac toe, three AI-driven cash cows in a row. Chris is primed to enjoy an impressive earnings season.
Remarkably, EXG still trades at a 6% discount to its net asset value (NAV). Meaning, we can grab MSFT, GOOG, and AMZN shares for just 94 cents on the dollar, right ahead of strong earnings.
In the meantime, Chris boosts income by selling (writing) covered calls on broad market indexes to generate extra income. Hence EXG’s nifty 9% yield.
Global X S&P 500 Covered Call ETF (NYSE:), managed by Nam To and Wayne Xie, follows a similar strategy and yields an attractive 12%. XYLD holds a substantial 40% tech allocation, capturing this automation-driven profitability boom. However, unlike closed-end fund EXG, XYLD trades at fair value, so no additional discount benefit here.
The broader automation trend clearly impacts employment numbers. Last week’s headline 147,000 job gain appeared solid. But removing 73,000 new government jobs (aside: weren’t they supposed to be cutting?) leaves only a gain of 74,000 private-sector positions, significantly below the expected 105,000.
Payroll processing firm ’s numbers last week were even harsher, a 33,000 private-sector job loss signaling AI’s impact already.
The machines are here for the jobs. But we, my fellow contrarians, are here for the payouts—specifically the nifty 9% and terrific 12% yields I’m calling out.
It’s big and already starting. Corporate automation plus a $3+ trillion spending binge from Uncle Sam is a powerful recipe for higher stock prices and bigger dividends.
Let’s ignore the “tariff worry” headlines. We are following the money, and it is dropping straight into the tech bros’ coffers. Let’s scrape some serious payouts and profits from this soon-to-be uncovered megatrend.
Disclosure: Brett Owens and Michael Foster are contrarian income investors who look for undervalued stocks/funds across the U.S. markets. Click here to learn how to profit from their strategies in the latest report, “7 Great Dividend Growth Stocks for a Secure Retirement.”