Gabelli Utility Trust: Utilities Are Appealing, But Not When Distribution Is Unsustainable

Nov. 25, 2020 9:40 PM ETGabelli Utility Trust (GUT)ANET, CSCO, ES, FE, GUT.PA, GUT.PC, IDU, NEE, NRG, PCG, VZ7 Comments

Summary

  • Utilities are fairly appealing in uncertain times due to their relative stability.
  • The sector delivered a reasonably strong performance in 2019, which is likely making some investors interested.
  • The Gabelli Utility Trust is globally diversified and offers a yield that is substantially above the index, which may appeal to index investors.
  • The fund is not generating nearly enough in income and capital gains to cover this distribution, and so, may be forced to cut.
  • The fund is substantially overvalued and will almost certainly deliver overall losses to its investors going forward.
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Utilities have become somewhat popular among many investors in our current pandemic-stricken world. This certainly makes a great deal of sense, as the virus has prompted many governments around the world to shut down their economies and put many companies into financial difficulties. Utilities have generally seen their revenues and cash flows hold up much better though, as most people would consider them to be providing a necessary good and they do not want to see their services cut off. In addition to this, utilities are generally one of the highest-yielding sectors in the economy, which is a very appealing thing for investors seeking income in a world where quality bonds are yielding practically nothing. Finally, utilities delivered a reasonably strong performance in 2019, so some investors might simply be riding on the coattails and are hoping for a repeat. Unfortunately, this popularity has also suppressed yields by pushing the share price up.

Fortunately, there is a way to get all the benefits of investing in utilities and get a much more attractive yield. That way is by investing in a utility-focused closed-end fund, which can often boast yields north of 7%. In this article, we will take a look at the Gabelli Utility Trust (NYSE:GUT), which is one of a few such funds, and see if it could be right for your portfolio.

About The Gabelli Utility Trust

As just mentioned in the introduction, the Gabelli Utility Trust is a closed-end fund focused on the utility sector. According to the fund’s web page, it has a primary goal of delivering long-term growth of capital and income. This is slightly different from many other closed-end funds that focus on providing current income first and foremost, but it is not exactly highly unusual, however.

What may be somewhat unusual is the

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