ETG: A Discounted CEF Providing Substantial Monthly Income

May.29.12 | About: Eaton Vance (ETG)

In the world of income investing, if you crave high yield you have to be ready to accept the general increased risk associated with it. An example of one of these higher-risk income options is the closed-end fund Eaton Vance Tax-Advantaged Global Dividend Income Fund (NYSE:ETG).

This CEF offers a compelling dividend of nearly 9.5% and is also trading at a discount to NAV. The fund has an inception date of 2004, so it has been around for a while now. The shares are currently trading at around a 5% discount to net asset value, and distributions are made on a monthly basis. The fund's investment objective is to provide a high level of after-tax total return. Such return is expected to consist primarily of tax-advantaged dividend income and capital appreciation.

Before continuing with ETG, let me first state that I fully understand that many risk averse investors do not like these types of closed-end funds. I like them because of the fact that one may potentially buy the shares at a discount to net asset value, gain exposure to leverage, and participate in investing strategies that retail investors have limited access to.

All stock investments have risk. Derivatives, preferred shares and other form of leverage make up a healthy portion of a leveraged CEF's portfolio. By balancing them off with safer less risky income investments such as dividend growth equities, I am able to achieve a much higher overall portfolio yield.

The fact that shares can trade at a discount to net asset value can be concerning if that valuation becomes extreme. Also, leverage can amplify losses as the cost of borrowing can eat into profits. Finally, management fees and administrative expenses can run high and offset potential dividends.

Another positive aspect about ETG is its holdings. The top equity names that the fund holds are such companies as McDonald's (NYSE:MCD), Chevron (NYSE:CVX), and Wells Fargo (NYSE:WFC).

The equity side of the fund makes up about 78% of the overall portfolio. The balance is made up of preferred shares and corporate debt. Roughly 57% of the portfolio is based within U.S. assets. Around 27% is allocated within Europe, with the remainder of the holdings coming from Australia and the Far East.

Sector Allocation

Financials 24.46%
Information Technology 10.02%
Health Care 9.65 %
Consumer Discretionary 7.91%
Energy 7.00%
Industrials 6.92%
Telecommunication Services 6.32%
Utilities 5.88%
Consumer Staples 4.01%
Materials 3.83%
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Country Allocation

United States 57.87%
Europe 26.71%
United Kingdom 8.10%
Eastern Europe 5.78%
Asia/Pacific 1.00%
North America except US 0.32%
Latin America 0.22%
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Top 10 Equity Holdings

McDonald's Corp. 2.36%
Chevron Corp. 2.34%
Wells Fargo & Co. 2.13%
International Business Machines 2.11%
QUALCOMM Inc 1.91%
Prudential Financial Inc 1.88%
AvalonBay Communities Inc. 1.84%
Sanofi SA 1.84%
Microsoft Corp 1.84%
MetLife Inc. 1.77%
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Ex-Date Distribution Per Share4 Distribution Rate

10/20/11 $0.1025
11/21/11 $0.1025
12/21/11 $0.1025
12/28/11 $0.1025
2/17/12 $0.1025
3/21/12 $0.1025
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Total Investments $1.61 Billion

Domestic Stock 43.89%
Foreign Stock 35.16%
Preferred Stock 19.40%
Cash and Other 1.55%
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Performance Analysis

Common Shares 1 Yr 5 Yr Life
Average Annual Total Return at NAV (%) 3.61 -2.54 5.93
Average Annual Total Return at Market Price (%) 6.52 -2.24 5.09
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Conclusion

Of course, this short article does not do enough to communicate all the facts and findings that are available. Hopefully it gives income investors some ideas for which they can continue to expound their own due diligence.

The fund offers investors:

  • Tax-advantaged dividend income: It invests primarily in dividend-paying common and preferred stocks and seeks to distribute a high level of dividend income that qualifies for favorable federal income tax treatment.
  • Potential for dividend growth: As part of its investment program, ETG seeks to invest in dividend-paying common stocks that have the potential for meaningful dividend growth.
  • Potential for capital appreciation: It employs a value investment style and seeks to invest in dividend-paying stocks that are undervalued or inexpensive relative to the overall market at the time of purchase.
  • Global diversification: ETG seeks investment opportunities both inside and outside the United States.

Disclosure: I am long GGN, MCD.