BDJ: Writing Options Against Quality With An 8% Yield

2025-03-07 10:15:00 ET

Summary

• The Blackrock Enhanced Equity Dividend Trust (BDJ) achieves a yield of 8% by writing options against a basket of dividend-paying stocks.
• BDJ's entire return over the last five years is attributable to dividends paid to shareholders, highlighting its strong distribution performance.
• The fund's consistent dividend payments and stable price make it a suitable investment for income-focused investors.
• Risks remain, and investors need to carefully consider several risks such as an opaque options model, a fleeting discount, and market volatility.

Introduction

The BlackRock Enhanced Equity Dividend Trust (NYSE: BDJ ) is turning twenty this year; the fund launched in August 2005, and is months away from having operated in public markets for two decades. Over that time, it has done well for shareholders from a total return perspective, up almost 130% from inception.

The fund currently operates under this premise: buy and hold a diversified portfolio of dividend-paying stocks, and write options against them (opportunistically, through active management) to produce income....

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