The Protected Principal Retirement Strategy portfolio is presently devoid of pure utility stocks. I have always liked having positions in at least three or four such vehicles; however, I am no longer able to find individual utility stocks with favorable outlooks that meet my yield criteria.
With the Memorial Day weekend upon us (I thank all whom have served and those whom have given their lives for this country), I decided to explore potential opportunities afforded by closed-end funds [CEFs] in order to possibly gain diversification, and hopefully meet investment goals within this sector. I look to CEFs since I am interested in diversification, globally if possible, the opportunity to purchase shares at a discount, and the potential to secure higher yields.
I found four possible portfolio additions.
Blackrock Utility & Infrastructure Fund (BUI)
BUI seeks total return along with high current income, and utilizes options strategies to enhance returns. It presently sells at a 6.63 percent discount to its net asset value [NAV]. At today's price, $.3625 quarterly dividend affords an annual yield of 7.51 percent. The yield on NAV is 7.00 percent. For those of you concerned about return of capital [ROC], the present dividend is approximately 40 percent ROC.
BUI has returned 11.94 percent year to date. It does not use leverage. Its investments consist of 97 percent equities, 59 percent of which are U.S. stocks. Other countries with a high percent of BUI invested capital include Brazil, the U.K. and Canada.
The fund charges annual fees/expenses of 1.05 percent.
Duff & Phelps Global Utility Income (DPG)
The objective of DPG is high tax-advantaged total return. DPG sells at a 7.84 percent discount to NAV. It pays $.35 quarterly, 55 percent of which is currently ROC. The yield on NAV is 6.30 percent. The fund utilizes leverage and the present level is 26 percent.
DPG has returned 19.96 percent year to date. Ninety-nine percent of its portfolio is in equities. One hundred percent of its portfolio is global, and the top five holdings are non-U.S. stocks.
Fees/expenses are a bit rich at 2.08 percent.
Wells Fargo Advantage Utility & High Income Fund (ERH)
I have always liked ERH, although it has never been a part of our portfolio. ERH sells for a small discount of 0.95 percent to NAV. Its goal is to provide tax-advantaged income via investments in debt instruments, preferred stocks, and convertibles.
It presently pays a monthly dividend of $.075 and has an annual yield of 7.22 percent. All of ERH's dividend is from income. The yield on the NAV is 7.15 percent. The fund uses leverage to enhance returns, and the present leverage rate is 16.5 percent.
Year to date, ERH has returned 15 percent and its investment portfolio consists of 53 percent equities, 27 percent bonds and 13 percent preferred stocks. Fifty-three percent of holdings are global and the remaining 47 percent are in U.S. stocks/bonds/preferreds etc.
Fees/expenses are presently 1.28 percent.
Cohen & Steers Infrastructure Fund (UTF)
UTF is another CEF that I have always liked. Owned a position a few years back, and have been waiting for a sizable pullback ever since.
The fund aims for a high total return and income, and presently sells for a 7.59 percent discount to NAV. UTF pays a quarterly dividend in the amount of $.36 for an annual yield of 6.84 percent. About 66 percent of this is ROC. The yield on NAV is 6.32 percent. The fund uses leverage, and the leverage is presently 31 percent.
UTF has returned 14 percent year to date. Its portfolio is comprised of 77 percent equities and 19 percent preferred stocks. Fifty-three percent of its investments are in U.S. stocks and the balance are global.
Fees/expenses are relatively high at 2.07 percent.
I continue to anticipate a pullback to the extent that one, or more of these CEFs will drop to a level where the yield approximates the eight percent level. My feelings relative to CEFs that use leverage are mixed. So long as the markets are moving up, leverage certainly presents the opportunity to enhance returns; however, during a market correction, leverage can work against us.
Of the four, BUI offers the highest yield at 7.51 percent while DPG has the greatest discount at 7.84 percent. ERH does not include ROC in their dividend payouts. From the standpoint of fees/expenses, BUI is the lowest.
Given a pullback in the markets, I would probably give strong consideration to initiating positions in just about any of the four, with BUI and DPG at, or close to the top of the list.