This Backdoor Tech Dividend Bargain Yields 14.3%, Trades at Big Discount
2025.01.08 07:46
Intuitive Surgical (NASDAQ:) is an intriguing everything-proof stock for Trump 2.0. The company specializes in cutting-edge surgical devices and regardless of what the Fed or President-Elect Trump does in 2025, we know that Americans will continue to have surgeries.
Human surgeons are expensive and prone to mistakes, so the big trend in the surgery room is towards robotics. Intuitive created the da Vinci system, the most widely used surgical robot in the world.
Business is booming. The company anticipates 12% to 16% year-over-year demand growth for da Vinci. Its technology is less invasive and more precise than humans, which leads to faster recovery times for patients. The company just launched da Vinci 5, which has already been used in over 12,000 procedures.
The Doctor Is In
ISRG shareholders had a field day during Trump 1.0. The stock returned 179%. Why wouldn’t history repeat, or at least rhyme, and reward investors with another double or better?
The bummer for us dividend investors is that Intuitive doesn’t pay one. Now, we could manufacture a payout by buying the stock and selling covered calls. But that is a pain.
Today, call options with strike prices just above ISRG’s current price fetch a $10+/share premium. They expire later this month. So we could buy the stock, sell (“write”) those covered calls, and pocket the 2% premium.
Then, we rinse and repeat in February. And March. And so on.
We know this strategy. But it is a grind. Why not outsource it to, say, a fund manager?
Rather than spending the rest of our lives writing covered calls, we are going to explore a “backdoor” payout play on ISRG. It nets us a 14.3% yearly dividend, paid monthly.
Better yet, there are no monthly check-ins from our side. We buy the fund once and manager Dr. Erin Xie and her team do the rest of the work.
All we do is buy the closed-end fund (CEF) BlackRock Health Sciences Trust II (NYSE:). ISRG is Dr. Xie’s top holding at 4.6% of the portfolio.
What a pick! The doctor’s fund BMEZ must be rallying in anticipation of Trump 2.0, right?
Wrong! On the contrary, the fund sits in the bargain bin, believe it or not. BMEZ trades at a 9% discount to the value of its assets.
In other words, we are able to snag this high-yield bounty for just 91 cents on the dollar. We’re “up” 9% without breaking a sweat.
Why the sweet dividend deal? On the campaign trail, Trump said he was going to let former candidate turned supporter Robert F. Kennedy Jr. “go wild on health.” A big “uh oh” for healthcare stocks?
The Wall Street suits didn’t wait around to find out. They have dumped anything and everything healthcare since the election and especially since RFK was nominated to run the Department of Health and Human Services.
Big pharma has especially been a hot potato because Trump also said of RFK at a rally: “I’m going to let him go wild on medicines.”
But Intuitive is not a medicine peddler. It is a surgical robotics innovator. Emotional investors will throw out an entire sector willy-nilly. So, the BMEZ selloff makes exactly zero sense.
The same logic extends to BMEZ’s top five holdings. Check out how they performed as a group during Trump 1.0!
BMEZ Holdings Boomed
These are all companies that benefit from less regulation. They returned 126%, 141%, 179%, 227% and over 1,000% during the first four years under Trump!
BMEZ is a neat way for us income investors to buy the basket, plus some. Dr. Xie’s team sells covered calls on its holdings to generate additional cash. Better BlackRock (NYSE:) than us! We don’t need the monthly options headache. Nor the long separate tax bill!
The covered call income powers the big payout. Plus, we have price upside via a potential “rhyme” of Trump 1.0 for stock holdings like Intuitive.
The healthcare sector-at-large is cheap and BMEZ is a straight-up bargain at just 91 cents on the dollar.
Not only that, but also investors just received a modest dividend raise. BMEZ dished a $0.17809 dividend in December, raising the fund’s yield to 14.3%.
Again, that is paid monthly. (The raise was part of BlackRock’s managed distribution play for the fund, which targets an annualized 12% payout—mission accomplished, BR.)
Income Calendar: $84,912.81 in Divvies for 2025
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.”
