ebook essays pieces of the puzzle
Wednesday, May 18th, 2011
managed distribution

The next few editions of pix will feature updates of popular postings of the past.  First up is the Gabelli Utility Trust (GUT), a closed-end fund featured not once but twice before.

This chart shows the price and NAV in the top panel, the price in relation to NAV in the middle, and the apparent yield at the bottom.  It is, in fact, more precisely called a “managed distribution.”  The last couple of years, 90% of the “dividend” has been a return of capital.  It should be a bit less this year, given that the monthly distribution was reduced by a penny a share.

It’s amazing to me that the most recent shareholder report says that “a distribution that is occasionally supplemented with a return of capital serves as a smoothing mechanism resulting in a more stable and consistent cash flow available to shareholders.”  Occasionally?  Supplemented?

Trading at a 25% premium and having 20% leverage to boot, GUT looks to have a relatively narrow range of conditions under which it will produce favorable performance versus alternative vehicles.  The managed distribution, however, continues to lead buyers astray — whatever the name, most of it is fake cash flow.  (Chart:  Bloomberg terminal.)

After writing this, I discovered a new posting by Douglas Albo on Seeking Alpha that includes his take on GUT.