February 13, 2025, was a significant day in Washington, DC, as Robert F. Kennedy Jr. took on the mantle of Secretary of Health and Human Services. His oath of office was administered in the Oval Office of the White House. Kennedy has not been without detractors, especially due to his controversial remarks surrounding vaccines, but this did not obstruct his Senate confirmation on a 52 to 48 vote.
Ex-Senate Republican Leader, Mitch McConnell of Kentucky, cast the lone Republican vote opposing Kennedy. Recently, financial speculation has been rife, with a specific focus on ‘unpopular’ dividends that are projected to skyrocket as mainstream investors potentially misunderstand the nuances of the ‘Trump 2.0’ era.
This week, attention has shifted to another undervalued sector of the market, healthcare. However, we are suggesting an alternative route that’s not the lukewarm option of the 3% yielding giant, Johnson & Johnson (JNJ). Instead, we suggest flipping the coin to seek out a potent 13% yielding healthcare closed-end fund (CEF).
This alternative proposition provides an optimal strategy to tackle concerns associated with RFK Jr.’s appointment as the head of HHS and the looming prospect of Trump’s proposed 25% tariffs on imported pharmaceutical goods. Enter the BlackRock Health Sciences Term Trust (BMEZ), known for its incredible 13% dividend yield.
It is worth noting that this healthcare-focused CEF offers more than just solid double-digit returns; the fund regularly pays on a monthly basis and has developed a reliable track record of increasing its dividends. Approximately 24% of its portfolio is composed of covered-call options, which in turn provide an added layer of financial security.
The alluring 13% dividend yield is just the tip of the iceberg in our investment rationale for BMEZ. Another two vital components to consider are the political influence of RFK Jr. and the implications of potential tariffs in the healthcare sector. Currently, BMEZ trades at a 3.1% discount to its net asset value (NAV), presenting an opportunity for potential investors.
A significant concern for healthcare investors emerged when Wall Street responded to the election outcome and RFK’s nomination as head of HHS with a selling spree. Although pharmaceutical shares have seen some recovery, they lag behind the S&P 500’s performance since November 5.
However, this situation could be a silver lining for the core holdings of BMEZ, primarily comprising biotechnology and medical-device firms. These companies tend to favor a less-regulated environment, and their impressive returns during Trump’s first term of 226%, 179%, 141%, 54%, and over 1,000% further support this perspective.
While ‘Trump 2.0’ is not exactly a replica of the initial administration, it could be even more beneficial from a regulation standpoint, as the current trends suggest a more rapid progress towards lesser regulation than before. Therefore, the dynamics of BMEZ offer income investors a possible avenue to hedge their bets on this repeat of the Trump era, thus securing increased dividends.
Tariffs indeed present a potential drawback. Trump has aired plans to impose a hefty 25% import levy on pharmaceutical products. However, past patterns show Trump’s tendency to use tariffs as more of a negotiation tool rather than an actual policy.
Additionally, Trump indicated that there would be a grace period for these companies to transition their production bases to American soil. Therefore, it is essential to remember that the future of tariffs remains highly uncertain and ever-evolving.
One crucial point to bear in mind is the continuous demand for pharmaceutical products to keep the healthcare system functioning. Given Americans’ sensitivity to rising healthcare costs, the idea of sustained tariffs working against this critical sector seems less probable.
In a nutshell, RFK Jr.’s inauguration as Health Secretary coupled with Trump’s tariff trump card on pharma imports has unsettled investor confidence, presenting an intriguing investment opportunity in the high-dividend-yielding BlackRock Health Sciences Term Trust (BMEZ).
The reins now handed to Trump 2.0 and shifting market dynamics create a unique, albeit complex, landscape for investors. However, with strategic investment moves, like considering BMEZ especially during its current relative discount, can prove rewarding.
Despite the uncertainties looming over healthcare, one thing remains clear: pharma products are indispensable and thus support a strong case against prolonged tariffs. Combining this with BMEZ’s strategic income-boosting elements, investors have an enticing investment opportunity within the healthcare sector.