New Buy: Blackrock Enhanced Equity Dividend Trust (BDJ)

I have been looking to find new investments that will help in increasing the overall yield of my portfolio.  My timeline when I am trying to use my dividend income is in the next 5-10 years so based on my analysis in a previous post, a higher dividend will be more beneficial for my goals instead of a lower dividend with high dividend growth. 

This search led me to research BDJ and I recently opened a new position. 

BDJ is a closed end fund from Blackrock.  Per their website, BDJ’s objective is to provide current income and current gains, with a secondary investment objective of long-term capital appreciation. The Trust seeks to achieve its investment objectives by investing in common stocks that pay dividends and have the potential for capital appreciation and by utilizing an option writing (selling) strategy to enhance distributions paid to the Trust’s shareholders. (Source: Blackrock) 

The Trust focuses on:

1. PORTFOLIO BUILT ON DIVIDEND GROWTH

Seeks to invest in companies with a greater potential for dividend growth

2. FOCUS ON HIGH QUALITY COMPANIES

U.S portfolio of large cap, high-quality companies

3. SEEKS TO REDUCE PORTFOLIO VOLATILITY

Sells (writes) call options on underlying equity portfolio, potentially reducing the fund’s volatility

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BDJ currently has 81 holdings including the top 10:

Within this portfolio, the Trust writes covered calls on individual holdings to increase the yield of the portfolio.  They currently have approximately 50% of the holdings in covered call contracts.  This is a good balance between getting current income from the options contract and capital appreciation on the non-written holdings. Check out this post for more information on how covered calls work.

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The current distribution is $0.0562 per share and the yield is just shy of 7% and is paid monthly.  The Trust also has historically provided special distributions during Q4.

The distribution has also been increased multiple times over the past years.

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The main goal of BDJ is the current income, but the total return has also been quite satisfactory as well. Below are the total returns over the past 10 years,

as of  Feb 28, 2022

	1y	3y	5y	10y
Total Return (%)	15.51	11.53	9.41	9.84
Market Price (%)	20.92	12.59	10.69	10.44

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Conclusion

BDJ is a quality CEF from a leader in the investment management industry.  Their distribution provides good current income and potential growth and special distributions.  The total return is satisfactory and meets my needs for my portfolio.  As always, do your due diligence, what works for one investor may not work for you.