Michigan's Tax-Advantaged Dividend Delight: Unpacking BlackRock's MIY Fund

The BlackRock MuniYield Michigan Quality Fund (MIY) has reaffirmed its commitment to steady income streams with its latest $0.0545-per-share dividend declaration, marking a consistent payout since early 2025. As a closed-end fund focused on Michigan municipal bonds, MIY offers investors a rare blend of tax-exempt income and stability—a compelling proposition in today’s volatile markets. But how does this fund’s dividend history, performance, and risk profile stack up? Let’s dive in.

Dividend History: A Steady Climb to 5.7% Yield

MIY’s dividend trajectory tells a story of gradual but deliberate growth. After a modest $0.0345 payout in late 2023, the fund hiked its monthly distribution to $0.0465 in January 2024—a 35% increase—and then to $0.0545 in January 2025, representing another 17% boost. This two-year streak of dividend hikes has delivered an average annual growth rate of 20.43%, outpacing many fixed-income alternatives.

The current $0.0545 monthly payout annualizes to $0.654, yielding 5.7% at MIY’s recent $11.53 share price—a standout figure in an era of low bond yields. However, this dividend’s structure is not without nuance. While BlackRock emphasizes its “managed distribution plan,” a closer look reveals that 98% of distributions through April 2025 were classified as return of capital, meaning investors are effectively receiving a portion of their initial investment back. This can erode net asset value (NAV) over time, a risk to monitor.

Performance Metrics: A Mixed Bag of Returns

Despite its attractive yield, MIY’s total returns paint a more complex picture. Over the past year, the fund delivered a 4.21% return, lagging behind the S&P 500’s 12.07% performance. Over five years, the fund’s annualized return sank to -9.68%, a stark reminder of the challenges in fixed-income markets amid rising rates.

The fund’s reliance on leverage—38.34% effective leverage as of late 2024—amplifies volatility. While this strategy can boost income, it also magnifies losses during market downturns. Meanwhile, MIY trades at a -9.41% discount to its NAV of $12.86, signaling investor skepticism about its future prospects.

Tax Considerations: A Silver Lining for Michigan Residents

For Michigan-based investors, MIY’s tax advantages are a game-changer. Distributions are exempt from federal and state income taxes, making this fund a top pick for those in high tax brackets. However, non-Michigan residents must pay state taxes on the income, diminishing its appeal.

Risks on the Horizon

• Interest Rate Sensitivity: Municipal bonds are inversely tied to interest rates. If rates rise further, bond prices—and MIY’s NAV—could drop.
• Credit Risk: Michigan’s economic health directly impacts the fund’s holdings. A downturn in the state’s economy could strain issuers’ ability to repay debt.
• Leverage Costs: MIY’s borrowing increases both upside and downside risks, especially in volatile markets.

Final Take: A High-Yield Play with Caveats

BlackRock’s MIY is a compelling option for Michigan investors seeking tax-free income, especially with its 5.7% yield anchoring returns. The fund’s 20.43% average dividend growth since 2023 underscores management’s focus on sustaining payouts. However, the heavy reliance on return of capital and a -9.68% five-year return raise red flags for long-term holders.

For income-focused investors willing to tolerate moderate risk, MIY’s managed distribution plan offers stability. But buyers must weigh the allure of tax-free income against the fund’s structural risks. As always, diversification and a long-term horizon are key.

In sum, MIY’s $0.0545 dividend is a bright spot in the municipal bond space—but it’s a bet best placed within a balanced portfolio.

Data as of May 2, 2025. Past performance does not guarantee future results.