BUI Closed-End Fund: Regular Payout and High Return (NYSE: BUI)
BlackRock Utility, Infrastructure & Power Opportunities Trust (NYSE: BUI) invests in shares of companies operating in the utilities and infrastructure sectors on various public stock exchanges around the world. Utilities and infrastructure companies are generally financially stable and generate high dividend yields. So funds like BUI look attractive to conservative investors and retirees as the economy continues to weaken. BUI generated annual revenue Average return between 6 and 8% over the last 8 years. It pays a monthly dividend and the payment has been generally constant ($0.12) over this period. Even the pandemic and inflation haven’t deterred the fund from offering consistent payouts.
BUI’s portfolio consists of global stocks in utilities and infrastructure
BlackRock Utility, Infrastructure & Power Opportunities Trust is a closed-end mutual fund (CEF) launched by BlackRock, Inc. and managed by BlackRock Advisors, LLC. It invests in stocks of companies around the world, primarily in large capitalization companies. These enterprises are mostly midstream enterprises, railways, toll roads, and other enterprises that provide the basic necessities for the functioning of modern society. The fund also writes call options to create covered call strategies. The fund was launched on November 22, 2011 and has been paying regular dividends since the very beginning.
BlackRock Utility, Infrastructure & Power Opportunities Trust is a small fund with a market capitalization of $450 million. Since the majority of investments are in utilities, it is not surprising that most assets are invested in large-cap stocks. Utilities are one of the most interest rate sensitive industries. This sector can even tolerate slight to moderate increases in interest rates. However, exceptionally rapid rate hikes are very problematic for utility stocks. The fund is also heavily exposed to derivatives and BUI writes covered call options. He makes a lot of money from the bonus he receives from selling call options. As a result, the fund is able to report a regular payout over the years. At the same time, BUI has a high expense ratio of 1.08%.
BUI’s portfolio – Stocks based on European economies face the worst
BUI has invested 42% of its total assets in foreign stock markets. Unfortunately, most of these holdings are in European markets. The conflict between Russia and Ukraine continues to have a negative impact on all major European stock exchanges. As there is no clear indication that this war will end in the near future, European economies will suffer, and so will their stock markets. Not to mention that utility companies will face the brunt of this ongoing conflict. Of its major investments in European markets, only RWE Aktiengesellschaft (OTCPK: RWEOY) has been able to record significant positive price growth over the past year.
Currently, BUI’s portfolio consists of 152 stocks. However, the top 70% of investments are only made in 24 stocks. Nearly 9% of the entire fund is invested in NextEra Energy, Inc. (NEE). Another 16% is invested in Enel SpA (OTCPK: ENLAY), TC Energy Corp (TRP), RWEOY and Waste Management, Inc. (WM). With the exception of ENLAY, all other stocks have generated positive growth over the past 2 years. WM grew by almost 46% during this period. These actions mainly drove BUI’s performance. And so, despite the negative growth of many other stocks, the price of BUI only fell by 5.7%. Given an average return of 6% over this period, the overall annual return for investors is over 3%. In this way, it performed better than the S&P 500 index.
An additional 45% of BUI’s portfolio is invested in American Electric Power Company, Inc. (AEP), Sempra Energy (SRE), Dominion Energy Inc. (D), The Williams Companies, Inc. (WMB), Duke Energy Corporation (DUK ), Johnson Controls International plc (JCI), National Grid plc (NGG), Public Service Enterprise Group Inc (PEG), Waste Connections, Inc. (WCN), EDP Renovaveis, SA (OTCPK: EDRVF), CMS Energy Corporation (CMS ) , Ingersoll Rand Inc. (IR), Iberdrola, SA (OTCPK: IBDSF), Atlas Copco AB (OTCPK: ATLKY), The AES Corporation (AES), Trane Technologies plc (TT), Vestas Wind Systems A/S (OTCPK : VWDRY), Schneider Electric SE (OTCPK: SBGSF) and EDP – Energias de Portugal, SA (OTCPK: EDPFY). Only AEP, SRE, WMB, AES – have seen price growth above 6% over the past year, and all of them are US-based companies.
Global diversification is important in a utility-focused portfolio portfolio
Country risk arises from the uncertainty surrounding investing in a particular country, and more specifically from the extent to which this uncertainty could lead to losses for investors. This uncertainty can arise from various factors such as the economic situation, the exchange rate, political stability or technological influences. The best way to protect investments against country risk is to ensure that only a small proportion of the entire fund is invested in a particular country. BUI did it very well. While most global ETFs hold almost 70% of investments in US stocks, BUI has almost 55% exposure. His investments in Europe are also well diversified, with only Germany and Italy accounting for more than 3.5% of his overall portfolio.
Global diversification has become crucial in the current context of economic and political uncertainty. Western economies are increasing their sanctions on multiple sources of oil and gas, which ultimately impacts utilities and infrastructure companies. Unfortunately, most investments are made in these Western economies. BlackRock Utility, Infrastructure & Power Opportunities Trust will benefit from greater geographic diversification, particularly in emerging economies. However, a good thing is that BUI has invested more than 5% of its entire portfolio in just one stock – NEE. Another thing that can encourage investors to invest in BUI is its adequate turnover rate of 20%. This means that the fund takes a long-term view of its investments.
BlackRock Utility, Infrastructure & Power Opportunities Trust is a globally diversified, utility-focused CEF that has invested primarily in Western economies. The fundamentals of this fund look good and it has paid out consistently over the past 8 years. The fund generates a sufficiently high return and has weathered the pandemic and the interest rate hikes. BUI looks attractive to conservative investors and retirees as the economy continues to weaken. The fund will, however, face the brunt of Russia’s war against Ukraine, and investors should take this into account before investing in BUI. The European portfolio has not performed well over the past year, and a protracted war could hurt it further. For the time being, existing investors should hold their investments in BUI and wait for a further drop in price to accumulate more units of this fund.