A significant AI improve simply crushed software program shares. We’re going to money in with two “volatility-loving” dividends paying 7.5%+.
Simply days in the past, new AI instruments have been rolled out that allow bots make complete apps by themselves. It’s not a giant leap from there to the query lots of people are asking now:
“Why would anybody purchase software program from a Microsoft (NASDAQ:) or a Salesforce (NYSE:) if AI can simply construct totally free?”
It’s legit, and it despatched these shares tumbling. It’s frankly arduous to know which breakthrough will come subsequent, although financials and workplace REITs have been pressured within the final couple days.
The takeaway from all of that is that AI is altering by the hour—and it’s rattling a unique sector with each iteration.
A Traditional “Quick-Time period Ache, Lengthy-Time period Achieve” Setup
Earlier than I’m going additional, I needs to be clear about one factor: It is a huge productiveness unlock that appears poised to drive shares larger.
Fewer people will probably be wanted, sure. However effectivity features are solely half of the story right here. Development is the opposite half. Penn Wharton numbers from September forecast a 1.5% increase to GDP between now and 2035, leaping to three% by 2055 and three.7% by 2075.
These are everlasting boosts to development. And people numbers are from September—a lifetime in the past in AI phrases.
Plus we’ve obtained different causes to be bullish, too, past AI.
For one, , Treasury Secretary Scott Bessent is making strikes that successfully cap long-term rates of interest. And 2026 is an election yr, so we will count on extra cash to move into the financial system.
This setup—a possible rise in volatility within the brief time period with strong development in the long term—is ideal for the “matched set” of seven.5%+ dividends beneath.
Enter the Final Market “Shock Absorber”
Each of those high-yielders are closed-end funds (CEFs) that promote covered-call choices on their portfolios. It’s a savvy transfer that leads to far larger dividends for us than we’d have the ability to get from, say, the standard S&P 500 inventory.
Below this technique, these funds promote, or “write,” choices that give the customer the correct to buy their inventory holdings at a hard and fast future value and date.
If the inventory hits that focus on, it’s prone to be bought. If not, nothing occurs. Both approach, the fund retains the charge—referred to as a “premium” in option-land—it expenses for the choice.
And that boosts these funds’ (and by extension, our) payouts. This technique, as you may in all probability inform, does finest in risky markets.
What’s extra, between them, these two funds maintain the shares within the and the , so we don’t even have to surrender our present holdings to get these 7.5%+ payouts. That diversification additionally provides us some insulation, as we’ll be unfold throughout a spread of shares and sectors.
Let’s stroll by them.
A 7.5% Payer Promoting for 8% Off
The Nuveen S&P 500 Dynamic Overwrite Fund (NYSE:) sells choices on 35% to 75% of its portfolio, and the premiums it collects drop straight to its 7.5% payout, which has risen 25% within the final 5 years.
A Rising 7.5% Payout
Supply: Revenue Calendar
Now let’s speak concerning the {discount} to web asset worth (NAV, or the worth of the fund’s underlying portfolio), as a result of it’s key to our purchase case right here.
As I write this, SPXX’s {discount} sits at 8%, close to a low not seen since October 2024. How did a purchase again then play out? Within the seven months following that point, SPXX’s {discount} shot from round 8% to simply 0.1%—close to par, in different phrases:
SPXX’s “Low cost Window” Slams Shut …
In simply seven months, that closing {discount} pushed the fund’s whole return to 9.4%, doubling up the S&P 500 (in orange beneath):
… Spiking Its Return, and Cushioning the “Tariff Tantrum”
That’s a giant transfer for a covered-call fund. Be aware additionally that SPXX didn’t fall so far as the S&P 500 in the course of the April “tariff tantrum,” and recovered way more shortly, too.
That is precisely what this fund is designed to do, and it’s why it stands out in unsure occasions. Similar with its “sister” CEF—an 8% yielder that’s even cheaper now.
“Software program Shakeout” Provides Us a Particular Deal on This 8% Payer
The companion to SPXX, the NASDAQ-holding Nuveen NASDAQ 100 Dynamic Overwrite Fund (NASDAQ:), pays that 8% dividend and trades at an 8.5% {discount}.
That, once more, is sort of triple the fund’s five-year common {discount} of three.1%.
In different phrases, only a reversion to that degree quantities to a 3% achieve within the share value, to associate with that wholesome 8% payout—a possible whole return of 11% in a yr.
And that’s earlier than extra upside from the fund’s tech-focused portfolio. That’s possible, as AI unlocks productiveness each inside tech (attributable to fewer human builders wanted to construct apps) and in sectors of the financial system past Silicon Valley.
This, by the best way, neatly sums up why we love CEFs usually—particularly that they’ve 3 ways to pay us:
- By means of their excessive dividends.
- By means of their closing reductions, and …
- By means of portfolio features.
However I digress. Again to QQQX, whose {discount} is giving us a very well timed purchase window now:
QQQX’s “Low cost Momentum”
In case you take a look at the correct aspect of the chart above, you see that QQQX’s {discount} continues to be vast however is arcing again towards par. That is sensible, as buyers look to the fund to tame their portfolio’s volatility whereas nonetheless in search of publicity to AI’s effectivity features.
This “discount-with-momentum” setup can also be a wise time to make a transfer into QQQX. And if we do get extra short-term volatility (once more, possible), I count on QQQX to maneuver again to (and past) its five-year common of three.1% even sooner. Meaning this 8.5%-off deal is probably going on borrowed time.
This 11% Dividend Crushes SPXX and QQQX—and Loves 2026 Chaos
Funds like QQQX and SPXX do assist easy volatility, because of their savvy possibility methods. However I’ve obtained one other fund for you that’s even higher.
It’s neglected. It holds a well constructed bond portfolio set to achieve as charges fall. And it yields a stout 11% (with dividends paid month-to-month).
Check out this soothing payout chart:
That’s precisely the type of payout we wish in occasions like these: excessive, dependable, month-to-month paid and sporting potential for development, too.
Furthermore, this 11% payer is run by among the finest bond managers within the enterprise. That’s one other approach it’s purpose-built for occasions like these, once we need a deft-handed professional with deep connections operating our bond holdings.
Reductions on funds like these have a tendency to fade as volatility ticks larger and buyers rotate out of development shares and into dependable sources of earnings like this. I don’t need you to overlook your likelihood.
Disclosure: Brett Owens and Michael Foster are contrarian earnings buyers who search for undervalued shares/funds throughout the U.S. markets. Click on right here to learn to revenue from their methods within the newest report, “7 Nice Dividend Development Shares for a Safe Retirement.”
