I promote the idea of building a balanced, high-yield portfolio for my newsletter subscribers. This means that the bulk of a subscriber’s portfolio will consist of dull, but very powerful, income-producing investments. We view more aggressive investments as additions to the core holdings.

Today, I want to highlight a remarkably stable, 8% yielding fund that is due for a dividend increase. This stability is a testament to its reliability and can provide a sense of security to our subscribers.

The Reaves Utility Income Fund (UTG) is a closed-end fund (CEF) that invests in shares of public utility companies and related infrastructure companies. Reaves launched the fund in 2004 and has steadily grown monthly dividends since then.

Note that the dividend payments have consisted almost exclusively of tax-advantaged qualified dividends and long-term capital gains.

However, the last dividend increase, from $0.18 to $0.19 per share per month, came in July 2021. Historically, the UTG dividend has grown almost every year, but the increase in interest rates over the last three years made the Reaves management team more cautious about increasing the dividend. Also, UTG carries about 20% leverage and higher rates mean a higher cost for that leverage. However, a recent report from them stated that the stocks in the portfolio had increased their dividends by an average of 8.7% over the last year.

Over the last few months, there has been a significant shift in sentiment about utility stocks and energy infrastructure. The investing public has come to realize that the growth of AI will necessitate massive new data centers, and these data centers will demand substantial amounts of energy.

The new emphasis on power generation for AI should be good for the UTG share price. Lower rates and growing dividends from the portfolio should let the fund managers restart dividend growth.

UTG currently yields 8.1%. Combine that with some dividend growth, and you will have an excellent core income portfolio holding.

— Tim Plaehn

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Source: Investors Alley