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Dividend Hunter Finds Value at Reaves Utility

06/24/2020 5:00 am EST

Focus: UTILITIES

Tim Plaehn

Lead Income Analyst, The Dividend Hunter

Reaves Utility Income Fund (UTG) is a closed-end fund that owns utility sector stocks and pays an attractive and growing income, asserts income expert Tim Plaehn, editor of The Dividend Hunter.

Reaves Asset Management, the investment adviser to the fund, is an investment management firm that works exclusively in the utility stocks sector. 

Utility stocks are generally considered a safe sector in the market, primarily for dividend-focused investors. The problem with utility stocks for my Dividend Hunter strategy is a low average yield, with the largest sector ETF paying a yield of just 3.4%. But Reaves has managed its Utility Income Fund to pay a higher yield along with monthly dividends.

Since the fund launched in 2004, the dividend has never been reduced, and in fact has regularly increased. The fund has returned 42.4% in dividends since I first recommended it in November 2015. 

Utilities are a safe harbor income investment class. Reaves provides that safety with a much higher yield than other utility-focused investments. The fund offers economic sector diversification to your income-focused stock portfolio. The company also pays dividends monthly, which is a bonus. 

I talk regularly with the fund managers at Reaves Asset Management, and they are committed to sustaining the Reaves Utility Income Fund dividend. 

On November 1, 2015, the share price was $29.95. It now stands at $31.26. The fund has returned 7.3% per year, very close to the average yield. The Reaves Utility Income Fund share price is down 22% from the pre-crash high. The current yield is 6.9%.

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