The motivation for owning shares of the Gabelli Global Gold, Natural Resources, & Income Trust (NYSEMKT:GGN) has been covered extensively by the Seeking Alpha community (see: here and here as recent examples). GGN, as the name suggests, is a play on gold, precious metals, commodities, and energy. As of September 30, 2011 GGN was comprised of 45% in stocks and fixed income securities of gold and other precious metals mining companies, 43% in stocks and fixed income securities of energy companies, and 12% in stocks and fixed income securities of base metal and other commodity companies. GGN utilizes a covered call strategy on the majority of its holdings. This strategy generally consists of writing "out of the money call options" for each of the names owned in the portfolio. The premiums that are collected contribute substantially to the periodic distributions made by GGN.
The purpose of this article is to publicize another (and widely unknown) reason for owning this closed-end fund. GGN offers a dividend reinvestment plan (DRIP) which allows an investor to purchase shares at a discount to market price under certain conditions. Per GGN's most recent quarterly report:
The number of common shares distributed to participants in the Plan in lieu of cash dividends is determined in the following manner. Under the Plan, whenever the market price of the Fund's common shares is equal to or exceeds net asset value at the time shares are valued for purposes of determining the number of shares equivalent to the cash dividends or capital gains distribution, participants are issued common shares valued at the greater of (i) the net asset value as most recently determined or (ii) 95% of the then current market price of the Fund's common shares.
Given that GGN often trades at a slight premium to NAV, this allows for long-term buy and hold investors such as myself to reinvest dividends below market prices. I would strongly encourage investors who have a long-term view on GGN to enroll in this plan. The substantial 10% yield paid monthly can be further enhanced by taking advantage of this plan. Share repurchases below market value coupled with compounding monthly dividends is a recipe for significant returns.
While this may not be true for all online brokerage accounts, I was able to enroll in GGN's DRIP via my online brokerage. To do this, I did the following. I called my online brokerage account, asked to speak to their dividend group, and told them that I wanted to participate in GGN's DRIP. The brokerage called me back the following business day, and informed me that I was now enrolled in the plan while making me aware of the following caveats:
- Shares will take up to a week to be added to the account instead of the typical one-day DRIP lag with my online brokerage account.
- The DRIP price may be higher (even with the discount) relative to the broker's DRIP price due to the fact that stock price movements may occur in between my online brokerage's DRIP date and the company DRIP date.
After acknowledging these conditions, I was enrolled in GGN's DRIP which is superior to my brokerage account's standard DRIP since the potential exists for reinvestment below market prices (up to a 5% discount).
Disclosure: I am long GGN.