The Search For Yields Part II: Utility Income Fund Paying 7%

In my search for high yielding funds I came across the Reaves Utility Income Fund [UTG]. The fund is a closed-end management investment company incorporated in the USA which seeks to provide high total return consisting of tax-advantaged dividend income and capital appreciation.

The Fund invests its assets in dividend-paying common and preferred stocks and debt instruments of foreign and domestic companies involved in the utilities industry.

The fund pays its dividend monthly and according to Bloomberg it has a trailing twelve month dividend yield of 7.09%. Not only that, the fund has provided investors with considerable upside.

Since 9 April 2009 the fund has risen from 8.22 to 25.84, a 214% rise. For comparison, over the same period the FTSE 100 has risen just 48%. It is also considerably less volatile than the FTSE.

A 3 year chart of the Reaves Utility Income Fund [UTG]Chart courtesy of Stockcharts.com

According to the company’s website the fund uses financial leverage as part of the overall investment strategy: “The Fund expects to use financial leverage through the issuance of preferred shares and/or through borrowings, including the issuance of debt securities. The Fund intends to use leverage initially of up to approximately 38% of its total assets.”

With this in mind those considering an investment in this high yielding income fund would do well to read the prospectus in order to fully understand the risks.

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