I am just not getting why people are paying so much attention to GABUX? An infatuation with dividend yield?
The GABUX dividend is almost entirely Return of Capital which helps explain why its total return is so poor long term. They're selling assets to pay out dividends. Then you have to add in that the fund is loaded. The three share classes don't give you much choice. You can pay a hefty front end load to buy it or you can skip the load and pay hefty annual expenses and all three classes have a significant contingent deferred sales charge if you decide to sell your shares in the next 1-6 years (depending on the class).
No thanks! There is no way I would consider GABUX. Poor total return, return of capital and high fees. I might consider it as a kind of annuity replacement for the monthly cash, but the high fees and contingent deferred sales charge would discourage me. I could find other investments paying similar dividends without the expenses and fees.
GABUX, a Gabelli utility fund, pays .009 income and .061 return of capital on a monthly basis. Since no taxes are due on the ROC component, it is a good place to defer taxes & park money while growing the number of shares owned. This is done by reinvesting the distributions to keep your cost basis constant. If you don't reinvest, each .061 distribution has to be subtracted from your cost basis and once it hits zero, you must report additional distributions as capital gains on schedule D.
As you grow the number of shares owned, profit can be skimmed off whenever the price is attractive. When shares are sold as you take profit, you would subtract your cost basis from the capital gain and report on schedule D. This method can be used to "burn up" (offset) part of your accumulated carry forward capital loss. Otherwise, all you can offset is $3,000 per year if from earned income.
New money in an open end fund does not increase NAV or dilute NAV or earnings. New money creates new shares and the new money is put to use so the new shares are exactly the same as all the other shares.
One of the reasons there is ROC with utilities is that utility companies are extremely capital intensive and generate a tremendous amount of depreciation which is an expense on paper but doesn't use any cash. Consolidation of companies generates ammortization of good will and is an expense that reduces income but does not use cash. As a result there is much more cash at year end than incoem and if it is paid to shareholders it has to be accounted for as a return of capital. Even though the market value of a utility may go up it is quite possible that book value went down. Real estate works the same way with depreciation. The book value reduces why the market value(historically) increases.
Good post Fred. I was a litte confused by the Gabelli web site. Do they allow direct acquisition of GABUX from the fund sponsor without a commission? It's not clear to me. Just curious, I have no intention of investing in this fund.