BUI - GUT: Destructive Return Of Capital Distributions Makes It Hard To Recommend This Expensive CEF

2024-05-07 06:14:56 ET

Summary

• Gabelli Utility Trust offers a high level of income for investors without sacrificing the potential upside from common stocks.
• The fund's yield of 10.51% is attractive compared to other utility funds, as it is far above what similar funds offer.
• However, the fund's recent performance has been disappointing, underperforming both the S&P 500 Index and the global utility index.
• The fund is maintaining its distribution by making destructive return of capital distributions, which will probably not be sustainable over the long term.
• The fund is extremely expensive, as it currently trades at more than double its NAV.

The Gabelli Utility Trust ( GUT ) is a closed-end fund that can be employed by investors who are seeking a high level of income from their assets but do not wish to sacrifice the upside potential that is possible from an investment in common stocks. As the name suggests, the Gabelli Utility Trust invests primarily in the common stocks of utility companies such as electric providers, natural gas utilities, or telecommunications companies. Historically, these companies have been among the favorite investments of conservative retirees due to their comparatively high yields. Unfortunately, much of the shine that these companies once had as providers of income were washed away by the incredibly low interest rates and substantial degree of money printing that characterized most developed economies over the past two decades. As of the time of writing, the iShares U.S. Utilities ETF ( IDU ) only has a trailing twelve-month distribution yield of 2.55%. Its international cousin is not much better, as the iShares Global Utilities ETF ( JXI ) has a trailing twelve-month yield of 3.54%. Obviously, neither of these is particularly attractive to income investors in today’s world where a money market fund yields 5.20% or so. The Gabelli Utility Trust, on the other hand, yields 10.51% at the current price so it is reasonably attractive as an income play. This yield compares reasonably well to many of the fund’s peers:

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