Dividend Confidential Takes a Peek at Reaves Utility

07/16/2020 5:00 am EST

Focus: FUNDS

Stephen Mauzy

Income-Investing Specialist, Wyatt Investment Research

Reaves Utility Income Fund (UTG) is a diversified closed-end fund (CEF) that owns 41different utility securities, explains income expert Steve Mauzy, editor of Dividend Confidential.

Roughly 92% of the portfolio is allocated to the common stocks of U.S. utilities, many of the traditional variety: NextEra Energy (NEE), DTE Energy (DTE), Verizon (VZ), and Dominion Energy (D) head the list.

Another 8% of the portfolio is allocated to foreign utility stocks: Enel SpA (ESOCF), an Italian energy conglomerate, and BCE Inc. (BCE), a large Canadian telecom, are top foreign holdings.

The Reaves Utility Income Fund is big. When it’s all tallied, the investment portfolio is valued at $1.9 billion. The portfolio is diversified across many utility sub-sectors. Diversification lowers volatility, a consequential benefit in a volatile market.

The degree of an investment’s volatility is manifest in its beta. The lower the beta, the lower the price volatility. Reaves’ 0.7 beta means its shares have historically been 30% less volatile than the overall stock market. Low volatility is a welcomed benefit in this market.

That said, Reaves distribution is the main attraction. The distribution is high yield, is paid in monthly installments, and is reliable.

Since launching as a publicly traded CEF in April 2004, Reaves has paid 195-consecutive monthly distributions. The distribution has never been reduced. On the contrary, it has been continually increased. Not only has the distribution been continually increased, it has been augmented by additional payments.

The Reaves Utility Income Fund has proven its worth as a perennial distribution-growth machine for income investors. Reaves yields 7.2%. No other utilities fund combines quality and income like Reaves. 

Reaves shares trade at a 2% premium to (NAV). Don’t be dissuaded by the premium; the shares traded at a 13% premium only two months ago. The spread has narrowed by 11 percentage points since May. That’s a significant swing. I see solid value in Reaves’ relatively discounted shares and its relatively high-yield distribution.

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