DPG: Why You Should Avoid The Utility Fund With A Big Discount And 9% Yield

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We had a hold rating on Duff & Phelps Utility and Infrastructure Fund Inc. and had rated its sister fund as a Strong Sell.We look at the returns since that call.We tell you why the large yield and ...

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JamesBrey/iStock via Getty Images Duff & Phelps Utility and Infrastructure Fund Inc.  is one we have previously covered. On that occasion, we contrasted it with its sister fund, DNP Select Income Fund . While we recognized that DPG was cheaper and, well, significantly cheaper than DNP, we could not get behind it for a buy rating. We rated DPG as a \"Hold\" and threw a cautionary \"Strong Sell\" on DNP. We look at how things have panned out for our protagonist and update our thesis in light of that. Returns Things worked out for our call quite well. DPG managed a flattish total return, lagged Utilities Select Sector SPDR  by about 4%. DNP, our Strong Sell rated candidate, got trashed. Data by YCharts Where Does DPG Stand?","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"MPLX":"MPLX LP","ET":"Energy Transfer LP","NEE":"新纪元能源","IE00BMG7P587.USD":"LEGG MASON CLEARBRIDGE GLOBAL INFRASTRUCTURE INCOM \"A\" (USD) INC","AEE":"阿曼瑞恩","LU2637428348.USD":"NORDEA 1 GLOBAL SUSTAINABLE LISTED REAL ASSETS \"MP\" (USD) INC","LU1988902786.USD":"FULLERTON LUX FUNDS GLOBAL ABSOLUTE ALPHA \"I\" (USD) ACC","IE00BJTD4V19.USD":"NEUBERGER BERMAN US LONG SHORT EQUITY \"A1\" (USD) ACC","BK4144":"石油与天然气的储存和运输","XLU":"公共事业指数ETF-SPDR","IE00BD4GTT62.SGD":"Legg Mason ClearBridge Infrastructure Value A SGD-H (mdis) plus","BK4533":"AQR资本管理(全球第二大对冲基金)","BK7083":"煤与消费用燃料","DNP":"DNP Select Income Fund Inc","LU2264538146.SGD":"Fullerton Lux Funds - Global Absolute Alpha A Acc SGD","EPD":"Enterprise Products Partners L.P","UTF":"Cohen & Steers Infrastructure","IE00BMG7P819.SGD":"Legg Mason ClearBridge - Global Infrastructure Income A Mdis SGD-H Plus","LU1621767810.EUR":"AZ EQUITY GLOBAL INFRASTRUCTURE \"A\" (EUR) INC","UTG":"Reaves 公用事业收益基金","BK4588":"碎股","LU0511384066.AUD":"SUSTAINABLE GLOBAL THEMATIC PORTFOLIO \"A\" (AUDHDG) ACC","LU1621768115.EUR":"AZ EQUITY GLOBAL INFRASTRUCTURE \"B\" (EUR) INC","ASGI":"ABRDN GLOBAL INFRASTRUCTURE INCM FD","BK4208":"复合型公用事业","IE00BMG7P694.USD":"Legg Mason ClearBridge - Global Infrastructure Income A Mdis USD Plus","LU0786609619.USD":"高盛全球千禧一代股票组合Acc","AWP":"Alpine Global Premier Properties","EPD.AU":"Empired Ltd","IE00BD4GTW91.USD":"LEGG MASON CLEARBRIDGEINFRASTRUCTURE VALUE \"A\" (USDHDG) INC","AEE.AU":"AURA ENERGY LTD","DPG":"Duff & Phelps Global Utility Inc","LU0289739343.SGD":"SUSTAINABLE GLOBAL THEMATIC PORTFOLIO \"A\" (SGD) ACC"},"translate_title":"DPG：为什么你应该避开折扣大、收益率9%的公用事业基金","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"AEE.AU":1,"XLU":1,"UTG":1,"UTF":1,"US7Y.BOND":1,"US6M.BOND":1,"US5Y.BOND":1,"US3Y.BOND":1,"US30Y.BOND":1,"US2Y.BOND":1,"US12M.BOND":1,"US10Y.BOND":1,"NEE":1,"MPLX":1,"DNP":1,"AEE":1,"ASGI":1,"AWP":1,"DPG":1,"EPD":1,"EPD.AU":1,"ET":1,"US912797HH31.BOND":0.6,"US912797HG57.BOND":0.6,"US912797HE00.BOND":0.6,"US912797GW17.BOND":0.6,"US912797GL51.BOND":0.6,"US912797GK78.BOND":0.6,"US912797GB79.BOND":0.6,"US912797FS14.BOND":0.6,"US912797FH58.BOND":0.6},"content_text":"We had a hold rating on Duff & Phelps Utility and Infrastructure Fund Inc. and had rated its sister fund as a Strong Sell.We look at the returns since that call.We tell you why the large yield and massive discount are not enough of a reason to jump in.   JamesBrey/iStock via Getty Images Duff & Phelps Utility and Infrastructure Fund Inc. (NYSE:DPG) is one we have previously covered. On that occasion, we contrasted it with its sister fund, DNP Select Income Fund (DNP). While we recognized that DPG was cheaper and, well, significantly cheaper than DNP, we could not get behind it for a buy rating. We rated DPG as a \"Hold\" and threw a cautionary \"Strong Sell\" on DNP. We look at how things have panned out for our protagonist and update our thesis in light of that. Returns Things worked out for our call quite well. DPG managed a flattish total return, lagged Utilities Select Sector SPDR (XLU) by about 4%. DNP, our Strong Sell rated candidate, got trashed. Data by YCharts Where Does DPG Stand? Let's start off by looking at the long-term chart of this closed-end fund. You have the NAV and the price below, and it gives you some important information.   CEFConnect-DPG The first being that the fund has not been able to preserve NAV through the last 13 years (inception date was July 2011). That is a fairly problematic thing to look past. We have seen plenty of closed end funds with charts that would make you throw up. But the bulk of them got their shirt and skirt handed to them during the global financial crisis, where leverage went on a date with a 60% drawdown. Here is abrdn Global Properties Fund (AWP), one of the weirdest ones people still go chasing for its \"13% yield.\" Data by YCharts The fund has managed a sub 0.5% total annual return since inception. Data by YCharts Getting back to DPG, the total returns also look pretty poor. Total returns on NAV are similar to AWP, with a sub 2% annualized return over the last decade. 3 and 5 year returns look fairly similar. CEFConnect-DPG While we can read that the fund has been struggling, we would be cautious in interpreting the benchmark returns. The reason is that category is \"US CEF Sector Equity.\" Essentially, any fund that focuses on a sector, falls in here. This can be Gold Miners or Real Estate Funds. We really don't see the value of lumping all these funds together. The category average tells you absolutely nothing about DPG. But we can tell you how some of the funds that really go up against DPG, did over the last decade. Before we do that, let's do a brief look to see what it holds. Based on the most recent report, it holds NextEra Energy Inc. (NEE), Duke Energy Corp and Ameren Corp (AEE) among its top 10 holdings. So those would be your major utilities.   CEFConnect-DPG It also has multiple MLPs like MPLX LP Partnership Units (MPLX), Enterprise Products Partners LP (EPD) and Energy Transfer LP. (ET). Based on that, we think the following funds, besides the above-mentioned DNP, would make good benchmarks. 1) Reaves Utility Income Trust (UTG) 2) Cohen & Steers Infrastructure Fund (UTF) There are some other funds as well, like abrdn Global Infrastructure Income Fund (ASGI), but they have not been around for as long as DPG. Here is what that looks like. Data by YCharts If that chart told you should chase that 9% yield, well, you came to the wrong Seeking Alpha article. Outlook & Verdict Of course, the past is not the future. But a fund that has done that poorly, cannot be your number one choice unless you believe something big has changed. We don't see any change there. Morningstar  Yes, the last 6 months have been great, but that is courtesy of Powell liquifying the system. Now inflation is roaring back, and rate cuts are being priced out. Do you want to hold a closed end fund that managed about 1% annually over the last 13 years for that climate? Investors get excited by that distribution yield, and it is one of the silliest things we have seen on Seeking Alpha. \"Can they maintain that 9% yield?\" they ask with bated breath. This is second grade math, people. If your total return 1% annually over 13 years and you believe in a sustainable 9% yield, you better hope the Easter Bunny brings your distribution check. There are two other things that stand out and, annoyingly enough, they make the case for the fund worse in our opinion. First is the leverage.   CEFConnect-DPG That is too much for us, and we always calculate it as a debt to common assets ratio rather than as debt to total investment exposure. The other is the annual expense ratio.   CEFConnect-DPG The one thing the fund has going for it is that the secret is out, and the fund trades at a wide discount. The current pricing on the 3 month Z-score suggests that a bounce could materialize here.   CEFConnect-DPG That could add some oomph to shorter term returns. But outside that, we would use any bounce as an opportunity to exit Duff & Phelps Utility and Infrastructure Fund Inc. Please note that this is not financial advice. It may seem like it, sound like it, but surprisingly, it is not. Investors are expected to do their own due diligence and consult a professional who knows their objectives and constraints.  Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. 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