Boulder Growth & Income Fund: If Berkshire Hathaway Paid Dividends

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About: Boulder Growth & Income Fund, Inc. (BIF), Includes: BRK.A, BRK.B
by: MacroGirl
Summary

Boulder Growth & Income Fund has a 3.7% yield, but still manages to broadly track the broader equity indices such as SPY.

With over a third of its portfolio in Berkshire Hathaway common stock, it is heavily dependent on Warren Buffett and the fortunes of the company.

If you like BRK, but bemoan the lack of a dividend, this fund could be for you.

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Boulder Growth & Income Fund (BIF) is a CEF occupying the middle ground between a pure income fund and one based on capital appreciation. To achieve this the fund has, according to the Boulder website, "a high level of investment flexibility" which allows it to invest in "equity and fixed income securities of domestic and international companies without limitation to a company's market capitalization." Given this flexibility it therefore seems a little odd that it chooses to invest over a third of its portfolio in Berkshire Hathaway (BRK.A), but perhaps owning BIF manages to improve on simply holding BRK.A? It pays a 3.9% dividend for a start. Let's take a closer look.

Fund Basics

BIF states its inception date as 1972, but it underwent major changes in 2015 as Boulder merged its four CEFs into BIF and started making regular distributions. Total Net Assets are around $1.3bn, with annual expenses of 1.39%. This is fairly standard, but considering the fund has only 33 and a low turnover rate, could be considered a little high.

The top ten holdings make up 74% of the fund, and as mentioned earlier, BRK is by far the largest holding.

Source: CEF connect

Cash and cash equivalents are 13.1% which the fund keeps in US Treasury Bills to boost its yield. Distributions were recently changed from $0.0340 paid monthly, to a $0.102/share quarterly dividend, which gives a 3.9% annual yield. The distribution amount has stayed fairly steady, and was last changed (increased) on 8/4/2016 from $0.0330.

Considering 33.92% of the holdings are made up of BRK which does not pay a dividend, a 3.9% yield seems pretty good. After all, the aim of the fund is to provide a good total return and is not focused on yield alone. Yet it does hold some high yielding, not exactly blue chip stocks to achieve this yield. Healthcare REIT Ventas (VNT) and Cohen&Steers Infrastructure Fund (UTF) (with a 8.38% yield) make appearances in the top 10 holdings. The top 10 also contains Yum Brands (YUM), which may look out of place sat next to some of the big names and big dividend payers, but looking at YUM's performance we have to hand it to management for its inclusion. YUM closed around 12% higher in 2018 and is trading near all-time highs.

Performance

Clearly performance is heavily dependent by on the top 10 holdings, and BRK especially. And of course it does not have any predictive power for the future. Nevertheless, it is worth looking at, if only to compare to some benchmarks. Here is the annual performance since the start of 2011.

Source: CEF connect

Compare these figures to annual returns of holding the SPDR S&P500 ETF (SPY) and it we can see BIF is similar, but has slightly higher beta. Understandable given the fund's 33 holdings compared to SPY's 500.

Chart BIF 1 Year Total Returns (Annual) data by YCharts

Losses in 2011 and 2015 were much larger in BIF than in SPY, which makes a 5 year holding period typically under-perform. Only a good performance in 2016-2018 helped BIF catch up to now slightly overtake SPY.

Chart BIF 5 Year Total Returns (Daily) data by YCharts

Overall, there isn't too much difference, but perhaps a more useful benchmark would be BRK itself as we want to know if the fund improves on simply buying the stock. On a year to year basis there is little difference between the total returns.

Chart BIF 1 Year Total Returns (Annual) data by YCharts

However, a 5 year holding period generally outperforms as long as you aren't unlucky enough to buy the highs before a steep correction.

Chart BIF 3 Year Total Returns (Daily) data by YCharts

There is the added benefit of being able to receive quarterly distributions and there is slightly more diversification than holding BRK alone. But make no mistake, BIF's fate is in the hands of BRK and Buffett, as the Boulder website makes quite clear:

... the Fund is highly concentrated in Berkshire Hathaway Inc., which, in addition to other business risks, is dependent on Warren Buffett for major investment decisions and all major capital allocation decisions. If Mr. Buffett were no longer able to fulfill his responsibilities to Berkshire Hathaway Inc., the effect on the value of the Fund's position in Berkshire Hathaway Inc. could be materially negative.

BRK at a Discount

An added bonus is being able to buy BIF at a deep discount to its NAV in the -15% to -20% range.

Source: CEF connect

We can argue that it makes little difference as the discount stays stubbornly below -15%, but when we see the discount reach extremes near -20%, a well timed buy can help boost gains as it generally snaps back again. This can be seen in the last month as BIF has outperformed BRK significantly as price narrowed the -20% discount to NAV at the lows back to the current discount of -17%.

Chart BIF 1 Month Price Returns (Daily) data by YCharts

My View

There is a risk that BIF tries to be both an income fund and one that grows capital and manages to do neither very well. However, I think the management have put this fund together well and with a certain degree of skill; managing to track BRK's performance and provide dividends is quite unique. It also has holds some well performing stocks such as YUM and Cisco Systems (CSCO), which are near all-time highs so their inclusion gives me confidence.

I can't see any underperforming stocks to make me think management are asleep at the wheel. The balance between yield, growth and safety seems about right, and to top it all off, we get everything at a -15% discount. I can't predict how BIF will perform over the next year or five years, but generally buying after a decline like we have just had leads to good gains and a performance in-line or better than SPY or BRK.

Conclusions

Clearly you have to like BRK to like BIF, and for those put off by BRK's lack of a dividend, this fund could be for you. Overall BIF is a solid fund that provides regular income and allows holders to participate in stock market uptrends. There is added risk/beta during stock market decline, but since we have already had a 20% "bear market" in recent times, we at least know we are buying relatively low.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.