Gabelli Utility Trust* is a closed-ended mutual fund launched and managed by Gabelli Funds, LLC. The fund invests in the public equity markets across the globe. The fund makes its investments in energy and utilities, repurchase agreements, telecommunications, cable and satellite, diversified industrial, wireless communications, environmental services, equipment and supplies, communication equipment, metals and mining, and agricultural sectors. It primarily invests in value stocks, focusing on companies whose securities have the potential to increase in value. The fund benchmarks the performance of its portfolios against S&P 500 Utilities Index. Gabelli Utility Trust was formed in July 7, 1999 and is domiciled in United States.
• Company profile from Yahoo Finance
This closed-end fund has now operated for almost 10 years so you’d think the public would have figured it out by now. The ‘hook’ for shareholders is a nice monthly payout they treat as ‘income to live on’. It’s currently set at $0.06 /share per month or an annual rate of $0.72 /share. On yesterday’s closing price of $6.88 that’s a juicy looking 10.465% annual rate.
Who wouldn’t want that when money market funds are paying 1 – 2%, bank CDs pay less than 3% and 10-year treasury notes offer 3.52%? Double digit income from conservative utility company shares… what a deal!
Until you understand where the payout is coming from, that is. The fund itself says that as of May 14, 2009 just 13% of the distributions had come from income from their holdings while 87% was ‘return of capital’. Thus the actual distributable dividend yield is a measly 1.36%.
The market price of $6.88 represents a $2.40 /share or 53.6% premium to Friday’s closing NAV of $4.48. Holders of Gabelli Utility Trust are paying dearly to get a 1.36% real return plus a monthly chunk of their own money back.
Insiders are not as stupid. They hold just 0.06% of these overpriced shares. Institutions own another 2.20% of the float leaving mom and pop with the other 97.74%.
That anyone would own these shares at anywhere close to today’s price is a true mystery.
Disclosure: No position.
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