We tend to like the active management offered by closed-end funds (CEFs) and when investing in the utility sector, we like two funds — Cohen & Steers Infrastructure (UTF) and Reaves Utility Income (UTG), asserts Rida Morwa, income expert and editor of High Dividend Opportunities.
Utility stocks tend to perform well during recessions because of their predictable revenues. Even during recessions, people need to have electricity, heat, water and Internet, etc. So demand for utilities tends to be fairly inelastic.
Also, governments often use infrastructure spending to help the economy when it's struggling. This has historically boded well for both UTF and UTG.
During the last recession, UTG did not reduce its distribution, and even paid a special distribution. UTF did even better and increased its distribution. Share prices might pull back, but significantly less than the general markets.
Utility stocks also tend to recover much sooner once the worst of the recession is over. This presents a good opportunity given the reliability of the distribution.
Every retirement portfolios should include utility stocks because this sector is a defensive one by nature. We all need power water, Internet, heating, etc. This sector also offers good prospects for growth under the policies advocated by the incoming Biden administration.
UTF and UTG are two CEFs that offer immediate diversification into this sector. They have lagged the overall market in the past year as investors have been chasing growth stocks rather than value stocks, resulting in relative undervaluation.
For income investors, these two funds offer high yields that have proven to be very reliable during their 15-plus years in existence, including during the great financial crisis.
UTF currently yields 7.3% and UTG yields 6.5%. They are "buy and forget" CEFs. As an added bonus, the dividends are paid on a monthly basis.