XLU - UTG: Don't Miss Buying This High-Quality High-Yielding Utilities CEF

2024-01-26 08:30:00 ET

Summary

• Reaves Utility Income Trust has underperformed due to the significant Fed rate hikes, making its dividend yields relatively less attractive.
• However, the UTG CEF may already have bottomed out and could benefit from the Fed potentially transitioning into rate cuts in 2024. Its solid yields should provide robust support.
• UTG's portfolio comprises high-quality companies with sustainable competitive advantages, making it a potential core holding for income-focused investors.
• UTG's 1Y total return remains well below its medium- and long-term averages, suggesting significant mean-reversion potential.
• Notwithstanding a remarkable recovery from its October 2023 lows, UTG remains well-poised to retake its long-term uptrend, potentially benefiting total return investors.

Reaves Utility Income Trust ( UTG ) is a high-quality closed-end fund, or CEF, mainly investing in utilities and infrastructure companies. As a result, it's deemed designed to be suitable for income investors looking to benefit from the fund's use of leverage to improve its distribution yield. However, the Fed's significant rate hikes in 2022-23 have battered utilities companies. The double whammy of higher financing costs and relatively less attractive dividend yields (compared to bond yields) impacted the performance of UTG. Accordingly, UTG has delivered a 1Y total return of -4.7%, well below its 5Y and 10Y total return CAGR of 4.1% and 7.44%, respectively....

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