CEG - FT: Underappreciated CEF Well Positioned For Net Zero And The Provision Of Income

2024-05-14 11:12:50 ET

Summary

• Franklin Universal Trust offers income-focused investors the opportunity to receive high income without sacrificing potential capital gains.
• The FT closed-end fund's current yield of 7.49% beats the S&P 500 Index and Dow Jones Industrial Average.
• Performance over the past three years has been disappointing, but including distributions, shareholders realized an 8.94% total return.
• The FT fund appears to be well-positioned to take advantage of a net-zero and AI-driven growth in electricity consumption.
• The fund is covering its distribution and trades at an enormous discount to net asset value.

The Franklin Universal Trust ( FT ) is a closed-end fund, or CEF, that can be employed by income-focused investors as a method of achieving their goals of receiving a high level of income from the assets that they already own. The fund employs a strategy that should allow it to deliver on this goal without requiring investors to sacrifice the potential for capital gains that is possessed by common equities. This is almost certainly going to make this fund seem rather attractive to many income-focused investors, who would otherwise be stuck purchasing fixed-income securities with much more limited upside potential. Unfortunately, the fund only has a 7.49% current yield, which is nowhere near the yields that can be obtained from the best junk bond or leveraged loan funds. It is still far better than the 1.47% current yield of the S&P 500 Index ( SP500 ), though:

Indeed, even the Dow Jones Industrial Average ( DJI ), which consists of dividend-paying blue-chip stocks, only yields 2.13% today. Thus, the Franklin Universal Trust beats that market index in terms of yield as well. Here is how the fund compares to its peers:

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