Gabelli Equity Income is a unique beast in the fund world because it has a managed distribution policy, paying $0.03 per share as a monthly dividend. That leads to a modest dividend yield of 1.5%. However, the fund has outperformed the market over the long-term, so income investors should take the time to review its portfolio. The portfolio manager recently highlighted Corning Incorporated (NYSE:GLW), Danone SA (ADR) (OTCMKTS:DANOY), and Genuine Parts Company (NYSE:GPC) as companies with good prospects.
Gabelli Equity Income has outperformed the S&P 500 over the trailing 5, 10, and 15-year periods through the end of the first quarter. Manager, Mario Gabelli, looks for companies with strong free cash flow, a history of regular dividend payments, and the potential for long-term earnings growth. He also likes to see a performance catalyst before he buys a stock.
Gabelli’s market expectations aren’t too high. “We have started to see that earnings are peaking, and the disconnect between continuing profit gains in the face of flattish revenue is over.” Moreover, he notes that “the economy is not gaining momentum,” and “The United States is in for another year of weak growth.”
He recommends that investors look for dividend paying stocks with “strong prospects for longer term earnings, dividend growth, and good cash earnings.” Gabelli’s portfolio highlights are a good starting point.
Corning Incorporated (NYSE:GLW) is a key manufacturer of specialty glass and ceramics. For example, it makes the glass used in liquid crystal displays and fiber optic cables. While its business is far more diverse than just these two products, Gabelli points to the company’s “specialty cover glass called Gorilla glass that offers tough resistance and thin form factor for display devices.” That one product alone accounted for “$1 billion of sales in 2012.” That’s one eighth of the company’s top-line.
That makes this one product pretty important to the company’s business. However, as the technology industry moves more and more toward a mobile future, such fortified glass will likely be increasingly in demand. It should continue to be a near-term growth driver.
The company initiated a dividend in 2007 and has increased it each of the last two years. With a payout ratio below 30%, it looks like more regular increases could be in the cards. The best part, however, is that the despite its high-tech glass, the company’s shares haven’t taken off like they did during the fiber optic build out at the turn of the century. It currently yields around 2.7%, trades with a reasonable price to earnings ratio of about 13, and has solid prospects.