Power Up Duff & Phelps for Global Utility Income

04/25/2019 5:00 am EST


Brett Owens

Chief Investment Strategist, BNK Invest, Inc.

Utilities have a proven record of defying downturns; you just have to look at last year’s autumn swoon to see this in action: utilities actually gained (including dividends) while pretty well every other market sector fell apart, notes Brett Owens, editor of Contrarian Outlook.

Trouble is, pretty well all first-level investors are clued in to utilities’ buoyancy—which is why the benchmark Utilities Select Sector SPDR ETF (XLU) has been bid up 9% in the last three months, narrowing the field for bargain hunters.

The good news? I’ve found a low-key way to buy our “utes” at a double-digit discount—11.4% off, in fact! So, we’re essentially rewinding the clock and paying 2018’s prices now.

It’s a closed-end fund (CEF) called the Duff & Phelps Global Utility Income Fund (DPG), payer of an outsized dividend.

DPG’s holdings include some of the steadiest names in the business, such Next Era Energy (NEE) — whose stock is 70% less volatile than the market, per its “beta” rating — American Electric Power (AEP)—83% less volatile — Canadian electric utility Emera (Toronto: EMA) and Britain’s National Grid (London: NG).

That 11.4% markdown is the fund’s discount to NAV, CEF-speak for the fact that DPG’s market price is now 11.4% below the value of the stocks it owns.

Here’s a conservative way to look at that number: if DPG’s markdown narrowed to 7.7% — easily doable, as that’s what it hit when the market freaked out in early 2018—you’d be looking at quick 4% upside to go with your huge dividend.

There’s one more thing bulking up DPG’s crash-resistance, and it comes back to the dividend: at the current dividend level, you’re getting a huge part of your gain in cash, not here today, gone tomorrow paper gains. Hold DPG for 11 years and the dividend will have “paid you back” 100% of your original investment.

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