The BlackRock Diversified Dividend Fund: Our Analysis and Rating (MDDVX)
By: Ned Piplovic,
The BlackRock Equity Dividend Inv A fund (NASDAQ:MDDVX) is a diversified dividend fund that invests in a blend of various U.S.-centric quality companies that have extensive records of dividend payouts and tend to offer growing dividend distributions.
Back-tested historical information indicates that dividend-paying stocks – especially equities with long records of rising dividends – tend to offer higher total returns over extended time horizons than their non-dividend peers. Therefore, it should not come as a surprise that this BlackRock diversified dividend fund has delivered higher dividend growth over the past decade than its peers and the underlying benchmark index.
This BlackRock diversified dividend fund seeks to mirror closely the composition and performance of the Russell 1000 Value Index. As of Feb. 14, this BlackRock fund had total assets of $19 billion, which were allocated across 87 individual holdings. The large majority of the fund’s assets – more than 90% — comprise investments in Large Cap equities. Less than one quarter of the remaining assets are in Small Cap equities with the remaining three-quarters in Cash and cash equivalents.
Holdings Turnover
Unlike the overall category that had an average holdings turnover of 57% over the past year, the BlackRock fund’s turnover was only 36%. The significance of the lower turnover is that buying and selling equities generates additional fees. These fees quickly can add up to counteract large portions of investment gains. Furthermore, while fees reduce investor gains in the short term, long-term consequences are even more dire. A small fee might not seem overly significant. However, even a small amount can compound to substantial gains over very long time horizons. Therefore, a small loss now could translate into large shortages over the long term – especially for stock holders who invest into this BlackRock Fund as part of their retirement strategy.
In addition to the steady dividend distributions and despite a 25% share price decline in the last quarter of 2018, the BlackRock fund’s price is currently almost double the price immediately after the overall market pullback during the 2008 financial crisis.
BlackRock Diversified Dividend Fund – Holdings
As of February 15, 2019, nearly a quarter of the fund’s total assets, 23.3% to be exact, comprised holdings from the Financials sector. The Health Care sector contributed another 21% of total assets. Furthermore, with 11.3% of assets in Information Technology (IT), these top three sectors accounted for more than 55% of the fund’s total assets.
With the Energy sector contributing 10.7% and 7.6% stashed into Cash and cash equivalents, the top five sectors cover nearly three-quarters of the fund’s holdings. Many investors might not consider Cash and cash equivalents as a sector. However, even including the next largest sector – Consumer Staples with a 6.6% share – instead of the cash positions, still gives the top five sectors a cumulative share of nearly 74%.
The BlackRock diversified dividend fund’s sector shares differ from the sector makeup of the fund’s underlying index. While the asset shares of the Financials sectors are similar – 23.3% for the Blackrock fund versus 22.5% for the underlying Russell index – the asset shares of the remaining sectors differ to a higher degree. The BlackRock fund holds a third more assets in the Health Care sector than the Russell index – 21% versus 15.75% – and nearly 21% larger asset share in the IT sector – 11.3% versus 9.3%.
Another major departure from the underlying index is that the BlackRock fund invests almost all of its holdings in equities based in North America. The BlackRock fund currently has only 77.6% in North American equities. Plus, the BlackRock fund has a much higher exposure to European (0.3% versus 13.1%) and Emerging Markets (0.1% versus 1.8%). Furthermore, while the BlackRock fund’s cash position is more than 7.5%, the Russell index does not allocate any of its assets into Cash and cash equivalents.
BlackRock Diversified Dividend Fund – Companies
The fund’s top 10 individual holdings account for more than 30% of the fund’s total assets. Among these 10 holdings, Verizon Communications, Inc. (NYSE:VZ) takes the top spot with 4.26%, while Pfizer, Inc. (NYSE:PFE) with 4.15% and JPMorgan Chase & Company (NYSE:JPM) with 3.62% round out the top three. These three holdings account collectively for more than 12% of the fund’s total assets. The top five holdings account for more than 18% of total assets. The table below contains the full list of the top 10 holdings.
BlackRock Diversified Dividend Fund – Dividends
While the graph below indicates volatility for the total annual distributions, the fund’s annual income payouts are much less volatile and exhibit an overall rising trend over the long term. The fund had no income payouts in 2000 but still paid capital gains distributions. However, since that miss, the fund’s total annual income distribution amount nearly tripled from $0.134 in 2001 to the $0.377 payout distributed in 2018. This level of growth is equivalent to an average annual growth rate of 6.3% per year over the past 17 years. Additionally, the total distribution amount – including short-term and long-term capital gains distributions – quadrupled from $0.677 in 2001 to a $2.567 total payout in 2018, which corresponds to an 8.5% annual growth rate over the same period.
The fund distributed its most recent quarterly income dividend on November 28, 2018. Based on the fund’s distribution schedule over the past few years, investors should expect the next income dividend payout in mid-April 2019. Therefore, interested investors have time to conduct their own due diligence to confirm that this BlackRock fund’s investment strategy aligns with their own investment portfolio plan.
The fund’s most recent regular quarterly dividend income payment of $0.096 is more than 30% above the $0.074 distribution from the same quarter last year. Additionally, the $0.377 total regular dividend distribution amount in 2018 was 11.2% higher than the $0.339 payout distributed for the entire previous year. Furthermore, the actual $0.377 total income dividend for 2018 yields 1.78%. However, the $2.567 total annual distribution – combined with capital gains payouts – corresponds to a 12.7% income payout on stakeholders’ investment over the past year.
BlackRock Equity Dividend Inv A fund (NASDAQ:MDDVX)
BlackRock Diversified Dividend Fund – Share Price
While delivering long-term gains, the fund’s share price has experienced several pullbacks along with the overall markets. The share price more than doubled following the 2008 crisis and reached its all-time peak in 2014. After a significant pullback in 2015, the price recovered most of those losses going into the trailing 12-month period.
For the first eight month of the trailing year, the share price traded relatively flat in the $22 to $24 range. After reaching its 52-week high of $24.20 in late September 2018, the share price declined nearly 27% towards its 52-week low of $17.73 on December 24, 2018. Since the 52-week low, the share price has risen steadily to close on February 15, 2018 at $20.15. While still nearly 17% below the 52-week high and 12% lower than it was one year ago, the current share price has gained nearly 14% above its 52-week low.
While the share price is down 12% for the trailing 12-months, the total dividend distribution payouts for the year compensated for most of that price decline to bring the fund’s total losses for the year to less than 1%. However, long-term stockholders enjoyed total returns of more than 38% over the past five years and total returns of nearly 44% over the past three years.
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Ned Piplovic is the assistant editor of website content at Eagle Financial Publications. He graduated from Columbia University with a Bachelor’s degree in Economics and Philosophy. Prior to joining Eagle, Ned spent 15 years in corporate operations and financial management. Ned writes for www.DividendInvestor.com and www.StockInvestor.com.
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