- The Gabelli Equity Trust (GAB, Financial) reaffirms its 10% distribution policy with a $0.15 quarterly cash distribution.
- 77% of the distribution is classified as a return of capital, raising sustainability concerns.
- Shareholders will receive their dividend on June 23, 2025, with tax implications varying based on the distribution's composition.
The Gabelli Equity Trust (GAB) has reaffirmed its commitment to a 10% distribution policy, announcing a $0.15 per share cash distribution for the second quarter of 2025. This payment is scheduled for June 23, 2025, for shareholders of record as of June 13, 2025. This quarterly distribution underscores the Fund's strategy to return a minimum of 10% of its average net asset value annually, or enough to meet IRS requirements for regulated investment companies.
In analyzing the composition of Gabelli's 2025 distributions, it is noted that approximately 77% is categorized as a return of capital, with only 21% derived from net capital gains and a modest 2% from net investment income. This substantial return of capital component highlights potential concerns regarding the Fund's ability to generate sufficient earnings organically to support its distribution commitments.
This distribution model has notable tax implications. While the return of capital is not immediately taxed, it reduces the shareholder's cost basis, which can lead to a larger capital gains tax liability when shares are eventually sold. The Board of Directors remains vigilant, regularly reviewing distribution levels in light of fund performance and market conditions, acknowledging the challenges in maintaining such a distribution model sustainably.
For investors, the Fund's distribution policy poses both opportunities and risks. While it offers a steady income stream, the high return of capital rate indicates that the fund may be essentially returning investors' original investment rather than distributing profit, potentially affecting long-term capital growth. Therefore, investors should weigh these factors carefully against their investment objectives.
