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Despite setbacks, Lucent trust is secure

Modified: January 18, 2013 at 1:37 am •  Published: January 20, 2013
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Gabelli Utility Trust (GUT-$6.70) is a closed-end fund trading at a whopping 24 percent premium to net asset value.

Few professionals would recommend a closed-end fund at this dangerously high premium. So it's safe to assume this goof was born on one of those days when the Lord's Parts Department was suffering severe brain shortages and resultantly has a room temperature IQ. He shouldn't be allowed to reproduce. He's dangerous to your wealth and, therefore, eminently qualified to be a member of Congress. And contrary to his analysis, GUT's portfolio is 31 percent leveraged, to the tune of $51 million. But this leverage doesn't represent borrowed funds, because this money derives from GUT's auction market preferred stocks.

Every 60 or 90 days, these auction market preferred stocks mature. So GUT must refinance $51 million at prevailing (auction) rates every few months, and those rates may be higher or lower than previous rates. Recently, these rates have been trending higher, and higher interest costs reduce GUT's payout.

When your brain-dead meathead reviews a financial statement, he should know preferred stock isn't carried as a debt (though it functions as a debt) and preferreds pay dividends that are higher than bond interest. And though the GUT common stock dividend has been a steady nickel a month, the dividend slowly will begin its decline like the stock price, which five years ago was more than $10 a share.

A huge 24 percent premium, a declining dividend and rising interest costs suggest GUT must move slowly lower. Meanwhile, GUT's 1.92 percent annual management fee is obscene. Gabelli should be ashamed of himself.

Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at mjberko@yahoo.com.


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