Vanilla investors are concerned about the Federal Reserve’s decision not to cut rates immediately, but there are opportunities to invest in high-yield utility stocks. Three closed-end funds, Duff & Phelps Utility and Infrastructure Fund, BlackRock Utilities, Infrastructure, & Power Opportunities Trust, and Gabelli Utility Trust, offer yields of 7% to 11% and are positioned to benefit from an upcoming bull run in utility stocks.
Duff & Phelps Utility and Infrastructure Fund uses leverage to invest in a diversified portfolio of utility and infrastructure stocks, as well as midstream plays and international stocks. Despite a recent cut to its quarterly distribution due to rising interest rates, the fund offers a distribution rate of 9.4%. BlackRock Utilities, Infrastructure, & Power Opportunities Trust has a more diversified portfolio with less exposure to utilities and geographic diversification. It offers a distribution rate of 7.1% and has maintained its monthly distributions since 2012.
Gabelli Utility Trust, managed by Mario Gabelli, focuses on investing in companies involved in providing electricity, gas, water, and telecommunications services. With a distribution rate of 11.0%, the fund has outperformed its competitors but has seen gains driven more by an increase in its premium to net asset value (NAV) rather than growth in underlying holdings. This premium valuation could be a cause for concern for investors looking to avoid overpaying for stocks.
Investors can utilize closed-end funds to purchase utility stocks at a discount and benefit from higher yields. While there are risks associated with investing in these funds, such as potential hits to energy that could depress prices, the current market conditions and the potential for a bull run in utility stocks make these options attractive for investors seeking higher yields in a low-rate environment.
Overall, the three highlighted closed-end funds offer attractive opportunities for investors looking to capitalize on the potential for a bull run in the utility sector. With distribution rates ranging from 7% to 11%, these funds provide a potential hedge against a recession and lower interest rates. By strategically investing in these funds, investors can boost their yields and benefit from the market conditions that favor utility stocks.
