BlackRock Core Bond Trust’s $0.0746 Dividend: A Steady Payout Amid Risks

The BlackRock Core Bond Trust (BHK) recently reaffirmed its commitment to investors by declaring a monthly dividend of $0.0746 per share, maintaining its steady payout since 2023. This distribution, which annualizes to an 8.54% yield based on its current share price, positions BHK as an income-focused play in a challenging fixed-income environment. But beneath the surface, the fund’s strategy raises critical questions about sustainability, leverage, and risk.

The Dividend’s Consistency—and Its Limits

The $0.0746 dividend has been a constant for BHK investors since its inception, with no changes over three years. This stability stems from the fund’s managed distribution plan, which guarantees a level payout even if earnings fluctuate. However, this structure has trade-offs.

The fund’s payout ratio of 1.87 signals that dividends exceed its earnings per share (EPS of $0.18), necessitating a reliance on return of capital (RoC). In recent months, RoC has comprised up to 36% of distributions, a practice that reduces the fund’s net asset value (NAV) over time. For instance, through April 2025, 34% of cumulative distributions were RoC, a red flag for long-term investors.

Performance: Yield Comes at a Cost

While BHK’s 8.54% dividend yield (as of May 2025) is enticing, its NAV performance paints a more nuanced picture. Over five years, the fund’s total return (relative to NAV) has averaged just 0.43% annually, far behind broader equity benchmarks. Even in 2025, its YTD return (0.23%) and 1-year return (0.42%) lag behind its income promise.

The fund’s share price currently trades at $10.48, near its NAV, but its 52-week range ($9.79–$12.10) highlights volatility. Investors must weigh the allure of income against the risk of principal erosion from RoC and lackluster NAV growth.

The Leverage Factor: Risk Amplified

BHK employs 32.91% effective leverage—a tool that boosts returns but magnifies losses in down markets. This strategy backfired in 2022, when the fund’s price plummeted 32.46%, underscoring the perils of borrowed capital in rising-rate environments. With interest rates still elevated, leverage remains a double-edged sword.

Portfolio Construction: Quality Over Growth

The fund’s portfolio leans heavily on investment-grade bonds (93.5% rated BBB or higher), including corporate debt and mortgage-backed securities. This conservative approach reduces default risk but limits upside in a low-rate world. The average portfolio coupon of 5.53% provides steady income but lacks the punch of higher-yield alternatives.

Management and Strategy: A Focus on Income

Led by Portfolio Managers Scott MacLellan (CFA, CMT) and Akiva Dickstein, BHK targets short-duration, multi-sector fixed-income opportunities. MacLellan’s ESG integration efforts align with BlackRock’s broader sustainability push, though this hasn’t translated to standout performance metrics.

Conclusion: A Dividend Machine, but with Caveats

BlackRock Core Bond Trust is a reliable income generator, offering a high 8.5% yield to investors seeking steady payouts. However, its reliance on return of capital, meager NAV growth, and leveraged structure mean it’s best suited for those prioritizing current income over capital appreciation.

Investors should note:
- Sustainability Risks: The 34-36% RoC in recent distributions signals limited organic income generation.
- Performance Lag: The fund’s 0.43% 5-year NAV return underscores the challenges of fixed-income investing in volatile markets.
- Leverage Caution: At 32.9% leverage, BHK’s upside is capped, but downside risks remain acute.

For income-focused portfolios with a tolerance for volatility, BHK’s dividend is a compelling feature. Yet, its long-term viability hinges on BlackRock’s ability to balance yield, leverage, and NAV preservation—a tightrope walk in today’s markets.

In short, BHK is a dividend stalwart but not without risks. Investors must decide whether the income stream justifies the trade-offs.