The Gabelli Dividend & Income Trust (NYSE:GDV)
The Gabelli Dividend & Income Trust (NYSE:GDV) is another popular fund for dividend equity investors that is managed by the famed Mario Gabelli. The objective of the fund is to seek out stocks with high yields and long-term capital appreciation potential. It’s also known to have relatively low portfolio turnover, which helps mitigate the impact of short-term capital gains taxes. As of the last reported disclosure, GDV had more than 400 holdings in its diverse portfolio.
This closed-end fund has $2.3 billion under management and currently pays an attractive yield of 6.42%. The Gabelli Dividend & Income Trust (NYSE:GDV) is employing a leverage ratio of 20%, which is moderate by many equity CEF standards. The fund is also trading at a 9% discount to its net asset value, which is slightly tighter than the 10.85% average over the last three years.
The quality approach to security selection, coupled with a strong management team and modest leverage, make this fund a solid contender among its peer group.
John Hancock Tax-Advantaged Dividend Income Fund (NYSE:HTD)
John Hancock Tax-Advantaged Dividend Income Fund (NYSE:HTD) invests 80% of its assets in dividend paying securities with a strong emphasis on the high yield utility sector. The portfolio includes a diverse array of common stocks, preferred stocks, and interest rate swaps when appropriate.
I like that the portfolio managers recognize the need to control interest rate risk within John Hancock Tax-Advantaged Dividend Income Fund (NYSE:HTD) considering the sensitivity of the core holdings. The willingness to manage this dynamic is a key reason this fund piqued my interest as a truly differentiated active strategy.
The fund currently pays a distribution rate of 6.78% and income is paid monthly to shareholders. It’s also trading at just a 3% discount to its net asset value, which is on the high side of the three-year average of 9%. That narrow discount is likely a warning sign that the price of John Hancock Tax-Advantaged Dividend Income Fund (NYSE:HTD) has been driven a little faster than historical norms and may be higher risk for new money at this juncture.
Nevertheless, this portfolio should be one to watch for those who are interested in a high yield equity income CEF with a strong track record and active philosophy.
The Bottom Line
As a closed-end fund portfolio manager, I always caution investors against the danger of purchasing funds based on one-dimensional factors like yield of tax-efficiency. Every fund should be evaluated for the merits of its portfolio strategy, distribution plan, costs, and comingling with other holdings in your accounts.
Furthermore, it’s extremely important to consider how a closed-end fund is trading relative to its net asset value and prior historical trends. If a fund is at an abnormal premium or very tight discount, it may be better to wait for a correction rather than jump head first into the frothy waters.
These vehicles offer many advantages over traditional ETFs and mutual funds. Yet, they must also be carefully managed because of the significant risks of sentiment turning the tides on the current price trend.
Note: This article is written by David Fabian and was originally published on the FMD Capital Management blog. FMD Capital Management is a fee-only investment advisor which provides daily updates on ETFs, portfolio strategies, and market insights. Contact them for a free portfolio review.