Reaves Utility Income Fund Offers Eight Years of Annual Dividend Hikes (UTG)
By: Ned Piplovic,
The Reaves Utility Income Fund (AMEX:UTG) – a fund investing in dividend-paying utilities –rewarded its investors with annual dividend hikes over the past eight consecutive years and currently offers a dividend yield of 6.9%.
In addition to the past eight years of consecutive annual dividend hikes, the fund failed to provide an annual dividend hike only twice in the past 14 years since beginning its dividend distributions in 2004. Therefore, the fund offered its shareholders annual dividend hikes more than 85% of the time.
The fund’s share price declined after its all-time high of nearly $36 in late August 2017, but reversed trend in late March 2018 and has been trending higher since then. This share price decline might be the pullback that interested investors needed to take along position at discounted share prices. However, with the ex-dividend date set for July 18, investors do not have much time for analysis and should move quickly to claim eligibility to collect the dividend payments that the company will distribute on the July 29, 2018, pay date.
Reaves Utility Income Fund (NYSE:UTG)
Reaves Utility Income Fund is a closed-end fund that focuses on investing in utilities and preferred income securities issued by companies. The fund’s target is to invest at least 80% of its total assets in dividend-paying common stocks, preferred stocks and debt instruments of companies within the utility industry. The remaining 20% of its assets may be invested in other securities including stocks, money market and debt instruments, as well as certain derivative instruments in the utility or other industries. As of May 31, 2018, the top five individual stock holdings by share of total assets were DTE Energy Co. (NYSE:DTE), NextEra Energy, Inc. (NYSE:NEE), Comcast Corp. (NASDAQ: CMCSA), Royal Dutch Shell plc (NYSE:RDSA) and Sempra Energy (NYSE:SRE) and combined for 25.75% of the fund’s total assets. Ninety-three percent of the fund’s $2.9 billion in assets under management is invested in U.S. common stocks. Foreign common stocks account for another 11.4%. The remaining assets are spread among limited partnerships, short-term securities and corporate bonds.
The fund’s current $0.17 monthly dividend payout is 6.3% higher than the $0.16 monthly distribution from the same period last year. This current monthly dividend amount is equivalent to a $2.04 annual payout and a 6.9% dividend yield, which is 8.2% higher than the fund’s own 6.4% average yield over the past five years. Additionally, the fund’s current yield is almost 130% higher than the 3.04% average yield of the entire Financials sector.
In the last 14 years since the fund started paying dividends, the monthly dividend distribution increased more than 75%. Since the last time that the fund’s streak of annual dividend hikes was interrupted in 2010, the total annual dividend payout rose nearly 50%, which is equivalent to an average growth rate of 5% per year.
The share price rose 8.4% at the beginning of the trailing 12 month before peaking at $36.53 on August 24, 2017. After peaking in late August 2017, the share price reversed direction after its late August peak and declined more than 25% before reaching it’s 52-week low of $27.37 on March 23, 2018. However, after another trend reversal, the share price regained 7.6% since it’s low from late March and closed on July 6, 2018 at $29.46. This closing price was still nearly 20% below the August 2017 peak and more than 12% lower than it was 12 months earlier, but 30% above the share price level from five years ago.
The recent share price gain was not sufficient enough to prevent the shareholders’ total loss in excess of 9%over the past 12 months. However, if the share price returns to its recent trends, it could easily bounce back to providing shareholders with total returns similar to its previous levels of 23% over the past three yeas and more than 59% over the past five years.
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