IGF - BUI: A History Of Underperformance But Should Be Reliable

2024-03-11 05:41:32 ET

Summary

• BlackRock Utilities, Infrastructure & Power Opportunities Trust aims to provide high current income by investing in utilities and infrastructure companies and writing covered call options.
• BUI has underperformed the U.S. utility sector but has seen its share price appreciate by 11.01% over the past six months.
• The fund offers a yield of 6.82%, outperforming other utilities and many infrastructure index funds in terms of yield.
• It has fully covered its distribution over the course of 2023 and has been pretty reliable and consistent over time.
• The fund is currently trading at a slight discount on net asset value.

The BlackRock Utilities, Infrastructure & Power Opportunities Trust ( BUI ) is a closed-end fund that aims to provide its investors with a high level of current income by investing in a portfolio of common equity securities issued by companies that traditionally have higher yields than most other things in the market. This is not an altogether bad strategy, as it allows for the generation of income while still retaining some exposure to the upside potential of common equities. In addition, many utilities tend to raise their dividend yields every year, so the fund's income should grow with the passage of time. This is, therefore, somewhat better in an inflationary environment than a fixed-income fund would possess. After all, most fixed-income securities do not change their coupon payments and they almost never raise them just because the issuing company's profits rise.

Unfortunately, the strategy has not been especially impressive recently as the utility sector in general was one of the worst-performing ones in the market over the past year. Infrastructure plays managed to do a bit better, though. Master limited partnerships also performed pretty well over the past year, but this fund does not invest too heavily in those. We can see this quite simply in this chart that compares the iShares U.S. Utilities ETF ( IDU ), the iShares U.S. Infrastructure ETF ( IFRA ), and the Alerian MLP ETF ( AMLP ) to the S&P 500 Index ( SP500 ) over the past twelve months:

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