GDV: An Undercovered Steady Income Fund

Summary

• GDV is an undercovered steady monthly dividend payer currently yielding 6.3%.  It produces this yield using a classic large cap value approach, with a bias towards dividend paying stocks.
• Management is invested in the fund, and recently increased their holdings in a rights offering.
• Long run total return performance has been mediocre, although its investing approach is conservative and value investing has been generally out of favor for a long time.
• The current 11% discount is higher than historical average.  Management has an open stock buyback plan when the discount exceeds 7.5%.

Gabelli Dividend & Income Trust (NYSE:GDV) has been a steady performer and reliable dividend payer since it launched in 2004. Its only major dividend reduction was during the financial crisis. GDV pays monthly dividends, and currently yields approximately 6.3% much higher than approximately 1.9% for the S&P. Most other funds that yield >5% use much more exotic strategies involving high yield debt or real estate, but GDV uses a classic value investing style focusing on large cap equities.

Portfolio

GDV generally buys large cap stocks with a strong dividend history that are slightly out of favor. They have large exposure to the financial services industry, as a lot of old school value investors typically do at this part of the cycle. For example, their largest positions include American Express (AXP), Bank of New York Mellon (BK), and JP Morgan Chase (JPM). In the food and beverage sector some of their largest holdings include Mondelez (MDLZ) and Pepsi (PEP). Although most of the largest holdings are in the US, around 20% of the portfolio is international, In the most recent quarterly letter they mentioned positive earnings trends that aren’t fully recognized by the market in many o f its key holdings.

GDV has approximately $2.5 billion in assets. The following table shows GDV’s portfolio by sector.

Unique Capital Structure

GDV has issued multiple classes of preferred stock and Auction Rate securities. GDV will likely repurchase some of the 6.0% Series D GDV.PD , Preferred Stock using some of the proceeds from a recent rights offering., leaving the lower cost preferred shares outstanding. The auction rate securities are likely to remain outstanding for many more years due to the drying up of that market post financial crisis. GDV’s common equity/assets ratio is 80%, and the preferred dividends are well covered by investment

Analyst’s Disclosure:I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.