Last month we purchased Fidelity Limited Term Bond (FJRLX) in our model portfolio. Part of our strat...
A One-Stop Shop for Utilities
06/15/2012 8:30 am EST
If you're interested in getting a piece of the best utilities out there without having to purchase each one separately, this closed-end fund my be just what you're looking for, writes Amy Calistri of The Daily Paycheck.
I don't believe investing strategies have to be complex to outperform the market. And I don't believe anyone should have to lose sleep worrying about their portfolio.
Our portfolio does particularly well in uncertain times because all of my holdings pay dividends. Dividends, like shock absorbers, cushion my total returns when market prices hit a pothole. And one standout for dividend investors is Reaves Utility Fund (UTG).
Reaves Utility is in my "Steady Income Generators" portfolio. This closed-end fund has a lovely portfolio of solid utility and telecom stocks—good defensive securities for bumpy times.
The market may have dropped double-digits last summer. But shares of this closed-end fund held up particularly well. UTG lost about 2.3% in price and only 0.8% in total returns. Here, UTG's defensive utility and telecom portfolio gets the credit.
Utilities and telecom services are necessities. And the companies that provide these services are generally known for having good cash flow and stable dividends. With roughly 70 holdings, UTG owns a good cross-section of these sectors.
Roughly two-thirds of its portfolio is invested in traditional utility companies such as Southern (SO) and South Jersey Industries (SJI). But it also has some holdings hailing from the oil and gas sector, such as Occidental Petroleum (OXY) and Seadrill (SDRL)
UTG pays a monthly dividend of 12.5 cents per share. The fund also distributed a special dividend of 33.2 cents per share at the end of last year. Just counting its normal distributions, UTG has a current yield of 5.8%.
It has been a little more than a year since UTG's last dividend increase. Based on the health of the companies in its portfolio, I think there is a good chance we could see another dividend increase from UTG in the near future.
Action to Take
UTG is one of the most diversified utility funds around. When asked for a list his favorite funds, PIMCO founder and bond expert Bill Gross almost always names Reaves—choosing it over the funds his own company manages.
It is one of my favorites as well. I think its defensive portfolio is especially well-suited for our current market conditions.
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