2023-03-31 09:15:00 ET
Summary
- UTF yields 8.03% and pays monthly.
- UTG yields 8.24% and also pays monthly.
- We compare these two CEFs on valuations, performance, expenses, and holdings.
Looking for high-yield exposure to infrastructure and utilities?
The Cohen & Steers Infrastructure Fund ( UTF ) is a closed-end fund which invests in infrastructure assets, such as Midstream Energy, 10%, Cell Towers, 8%, Gas Distribution, 6%, Freight Rails, 7%, Toll Roads, 6%, and Airports, 5%, and also has exposure to Utilities, 30%:
If you're looking for more exposure to the Utilities sector, you may want to consider the Reaves Utility Income Fund ( UTG ), which also is a CEF.
UTG holds ~61% in Utilities, 17% in Communications Services, ~7% in Real Estate, ~7% in Industrials, and ~4% in Energy assets:
Fund Profiles:
UTF- "The Fund's objective is to achieve total return, with an emphasis on income. Under normal market conditions, the Fund will invest at least 80% of its managed assets in securities issued by infrastructure companies, which consist of utilities, pipelines, toll roads, airports, railroads, ports, telecommunications companies and other infrastructure companies." (UTF site)
UTG- "The Fund's objective is to provide a high level of after-tax total return consisting primarily of tax-advantaged dividend income and capital appreciation. It intends to invest at least 80% of its total assets in dividend-paying common and preferred stocks and debt instruments of companies within the utility industry. The remaining 20% of its assets may be invested in other securities including stocks, money market instruments and debt instruments, as well as certain derivative instruments in the utility industry or other industries." (UTG site)
UTF has a larger asset base, a much higher amount of holdings, but has lower a volume than UTG. UTF's expenses are higher, at 2.44%, as is its leverage, at 30%, vs. 20% for UTG. Both funds IPO'd in 2004.
Dividends:
At its 3/29/23 $23.16 closing price, UTF yielded 8.03%, vs. 8.24% for UTG. Both funds pay monthly, and UTF has a higher five-year dividend growth rate of 5.17%, vs. 3.5% for UTG.
UTF's management declared the fund's Q2 '23 distributions this week. The monthly $.1505/share payouts come from 60% income and 40% long-term capital gains:
UTF's distribution coverage suffered in fiscal year 2022 - its NII and realized gains only covered ~65% of its distributions, vs. covering ~126% of them in fiscal year 2021:
UTG covered its fiscal year 2022 distributions by 108%, vs. having a shortfall in fiscal year 2021, when it only covered ~93% of its payouts:
Taxes:
As of 2/28/23, UTF's 2023 distributions were estimated to have come from 30.74% NII, 20.55% long-term capital gains, and 48.71% return of capital:
UTG's February - October 2022 distributions came solely from long-term gains, while its November - December distributions came from 49.1% long-term gains, with the remaining ~51% being characterized as qualified dividends:
Holdings:
UTF's top 10 positions UTF's top 10 positions form ~31% of its portfolio, with a mix of well-known Utilities and Infrastructure names, such as NextEra Energy (NEE), Southern Company (SO), and American Tower (AMT), among others.
UTG's top 10 positions form 36.57% of its portfolio, with positions running from ~3 to 4.1%. TELUS ( TU ) and WEC Energy ( WEC ) were replaced by NiSource ( NI ) and DTE in December '22.
Performance:
UTF outperformed the Morningstar US CEF Sector Equity category on an NAV basis in 2017-2019 and in 2021, and outperformed it on a price basis in 2017- 2020, 2022, and 2015:
UTG lagged the Equity CEF category in 2020-2022 and outperformed in 2018-2019, and 2015-2016:
More recently, both funds have underperformed the S&P 500 over the past month, six months, year, year-to-date, and on a one-year ~total return basis:
UTG has the edge for total return since inception, with a 13% higher total return than UTF:
Valuations:
Buying CEFs like UTG and UTF at a deeper discount than their historical average discounts/premiums can be a useful strategy due to mean reversion. CEF daily NAV/share valuations are calculated after the market close.
At its 3/28/23 closing price, UTF was priced 1.26% below its NAV, which compares well with its 1- and 3-year average premiums of -0.05% and 1.46%; and was slightly deeper than its 5-year average premium of -1.15%.
UTG's 0.44% premium was higher than its 1-year 0.20% premium, lower than its 3-year premium, and more expensive than its 5-year -0.11% premium:
Parting Thoughts:
Sectors often flip-flop: Contrary to 2022, when energy was the leading sector by a wide margin, with a 32%-plus price performance, and utilities were the second-best performing sector, things are different so far in 2023 - utilities and energy are on the bottom of the heap.
Meh! We're passing on UTF and UTG for now - this isn't the year for these CEFs, and their current NAV pricing doesn't offer enough of an advantage to buy at this point.
Tech is back leading the pack, but unfortunately, it's not a great sector for income investors, with the lowest sector dividend yield in the market, but there are a few ways to get around that.
All tables furnished by Hidden Dividend Stocks Plus, unless otherwise noted.
For further details see:
UTF And UTG: 8% Yields, Monthly Payouts