BST: 8.5% Yield, Historically Deep Discount

seekingalpha10-06

The BlackRock Science and Technology Trust offers an attractive 8.5% yield by investing in tech and science assets, utilizing covered call options.BST's portfolio is heavily weighted in semiconductors...

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Solskin Like many other income investors, we've often bemoaned the fact that Tech stocks don't pay attractive dividends. One way we've circumvented that problem is to invest in CEFs, closed end funds, which invest in Tech. The BlackRock Science and Technology Trust (NYSE:BST) is one of those funds which offers investors an attractive yield, ~8.5%, on Tech and Science assets. It does this via selling covered call options on a portion of its portfolio. Fund Profile BST is a perpetual CEF, with the investment objectives of providing income and total return through a combination of current income, current gains and long-term capital appreciation. Under normal market conditions, BST will invest at least 80% of its total assets in equity securities issued by U.S. and non-U.S. science and technology companies in any market cap range. (BST site) As of 6/30/24, BST had 28% of its portfolio overwritten with covered call options. BST is one of the larger equity CEFs - its market cap is in the top 30 funds. It had 96 holdings, with 144K in average volume, as of 8/31/24. Its gross expense ratio is 1.09%.   Hidden Dividend Stocks Plus Holdings Semiconductors was BST's main industry exposure, at 33.9%, up from 28.6% at 12/31/23. Software & Services decreased from 35.7% down to 30.8%. Management also decreased the fund's Financial Services holdings, from 6.14% to 2.84%. Tech Hardware was stable. These top 3 industry holdings formed ~75% of BST's portfolio, as of 8/31/24.   BST site BST's holdings are generally dominated by large caps - as of 8/31/24 it held ~79%, vs. ~77% at 12/31/23. It had ~20% in small caps, vs. ~22% at 12/31/23.   BST site   BST site  Dividends At its 10/3/24 closing price of $35.13, BST's dividend yield was 8.54%. It pays a monthly $.25 distribution, and goes ex-dividend next, on 10/15/24, with a 10/31/24 pay date. BST has an impressive 5-year dividend growth rate of nearly 19%, due to a major 107% rise in 2021. Management raised the monthly payout from $.226 to $.25 in Q4 2021.   Hidden Dividend Stocks Plus Taxes BST's 2024 distributions of $2.25 were estimated to have come from 100% long term capital gains, with no Return of Capital, ROC:   BST site BST's 2023 distributions were estimated to be 100% Return of Capital - ROC. ROC offers you a tax deferral advantage, but it lowers your tax basis, so your tax liability is affected when you sell.   BST site  Performance In its 6/30/24 semi-annual report, management noted that, \"An underweight position in Apple Inc. (AAPL) was the largest contributor to performance at the individual security level. The stock lagged due to regulatory pressures and weak demand in China, where it faced stiff competition from local smartphone brands. A zero weighting in Intel Corp. (INTC) also contributed. Security selection in software and an out-of-benchmark allocation to the internet sub-sector were the largest detractors from relative performance. An underweight in NVIDIA, Inc. was the most significant detractor among the Trust’s individual holdings.\" (BST semi-annual report) As of 8/31/24, BST had a 20.5% 1-year return on NAV, and a 15.28% NAV Return since inception. That 1-year return was much higher than the 13.7% market price return over the past year, while the market price return from inception was 12.08%, 120 basis points lower than the NAV return.   BST site BST has bounced between leading and lagging the US Equity CEF category since 2021. So far in 2024, it lags; while in 2023, it greatly outperformed. In 2022, when rates were rising, it greatly lagged, as it did in 2021. It outperformed 2017-2020, during a low interest rate period.   BST site Valuations Buying CEFs at a deeper than historical discount can be a useful strategy, due to mean reversion. NAV/share values are calculated after the market close each day. As of the 10/2/24 close, BST was selling at a 5.9% discount to its NAV/Share. That's a much deeper discount than its 1-. 3-, and 5-year discounts of 1.96%, 1.46%, and 0.21%, respectively. We also note that BST's $37.30 NAV/Share is nearly 2X of its inception NAV/Share, even with paying out ~$23.60/Share in distributions since its 2014 inception. That's often not the case with CEFs - many of them trade at much lower NAV/Share values than their inception NAV/Share.   Hidden Dividend Stocks Plus,  Parting Thoughts We rate BST a Buy, based on its attractive 8.5% dividend yield, its deep discount, and its positioning in Tech. It should do well in a lower interest rate era.  All tables furnished by Hidden Dividend Stocks Plus, unless otherwise noted.","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.3","shortVersion":"4.29.3","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2473169314"}