Have Your Gold ... and Dividends, Too

Have you heard the old adage: “Have your cake and eating it too”?

I seem to remember this from some time back as the adage relates to getting something special in addition to what you wanted, like having a cherry on top.

As investors, we want to own gold but it is difficult to do. If you take possession of gold, you must pay to store it without getting cash flow throughout the tenure. If you purchase gold mining stocks, you don’t get many dividends to go with the stock market risk.

I have a solution if you want your gold and dividends too. The Gabelli Global Gold, Natural Resources and Income Trust (GGN) gives you precious metal exposure and an annual dividend yield greater than 10% paid monthly.

The Gabelli Global Gold, Natural Resources & Income Trust is a non-diversified, closed-end management investment company that seeks to provide a high level of current income. The Fund’s secondary investment objective is to seek capital appreciation consistent with the Fund’s strategy and its primary objective.

This Fund does not invest directly in precious metals but buys equity in companies involved in the precious metal industry. Under normal market conditions, the Fund will attempt to achieve its objectives by investing at least 80% of its assets in equity securities of companies principally engaged in the gold industry and the natural resources industries. The Fund will invest at least 25% of its assets in the equity securities of companies principally engaged in the exploration, mining, fabrication, processing, distribution or trading of gold or the financing, managing, controlling or operating of companies engaged in “gold-related” activities. In addition, the Fund will invest at least 25% of its assets in the equity securities of companies principally engaged in the exploration, production or distribution of natural resources, such as gas, oil, paper, food and agriculture, forestry products, metals and minerals as well as related transportation companies and equipment manufacturers.

The income component is generated by the sell of covered calls against the Fund’s holdings. GGN pay a monthly dividend of $0.14 for an annual dividend of $1.68. Trading at $16.00 per share, the annual dividend yield is 10.5%. As of December 29, 2009 the fund has a one-year return of 78.2% but only sells at a 3% premium to its NAV. Over the Fund's four year history, the range has fluctuated from a 56% premium in January 2009 to a 10% discount in April 2008. GGn has a market cap of $350 million and an expense ratio of 1.28%.

What the investing gurus are saying about gold:

Marc Faber says gold stocks are the best bet against global financial meltdown.

Jim Rogers has already predicted that gold will zoom to touch $2000 per ounce. He says gold consuming countries like China and India, central bank buying and declining dollar value are driving up gold prices and therefore, gold is not sitting on a bubble.

In contrast, Bloomberg quoted Nouriel Roubini as saying the idea of gold going to $2,000 per ounce was “utter nonsense”. Maybe $1,100 or so, says Roubini, but that’s about it.

Regardless of which expert may be correct, I want to receive the 10.5% dividend yield from GGN to protect my downside and still have room for some upside movement.

This is a good ETF to dollar-cost average into throughout early 2010. I suspect that the U.S. Dollar will strengthen in early 2010 and place pricing pressure on gold. During its price increase in 2009, gold has moved inversely to the dollar If this trend stays intact, you can purchase GGN throughout early 2010 close to the NAV price.

Disclosure: I own shares of GGN