Cindy Ord
About a year ago, I reviewed the Gabelli Dividend & Income Trust (NYSE:GDV), the flagship closed-end fund (“CEF”) offered by Gabelli Asset Management (“GAMCO”) and lead managed by Mario Gabelli himself.
My verdict on the GDV fund was not favorable, as the GDV fund had delivered below-average historical returns with above-average volatility. Since my article, the GDV fund has returned 5.7% compared to over 20% for the S&P 500, partly justifying my caution (Figure 1).
Figure 1 – GDV has underperformed the S&P 500 since February 2023 (Seeking Alpha)
However, closed-end fund market performance can deviate from its actual NAV returns. With a year gone by, let’s review the GDV fund in detail to see if there have been any notable changes with its portfolio and whether the outlook is brighter now for the fund.
Brief Fund Overview
For those not familiar, the Gabelli Dividend & Income Trust targets high total returns by focusing on dividend-paying stocks or other income-producing securities. The GDV fund may also invest up to 35% of its portfolio in international securities and up to 10% in junk bonds.
Portfolio Little Changed From Last Year
Looking at GDV’s portfolio at a high level, we can see that little has changed in the fund’s allocation, with the top sector allocations consistently being Financial Services (15.4% as of December 2023 vs. 15.1% in December 2022), Health Care (10.8% vs. 10.9%), and Food & Beverage (10.1% vs. 10.7%) (Figure 2 and 3).
Figure 2 – GDV top sector allocations, December 2022 (GDV factsheet)
Figure 3 – GDV top sector allocations, December 2023 (GDV factsheet)
The only notable difference is an increase in the weight allocated to Computer Software & Services, from 5.1% in December 2022 to 8.1% as of December 2023.
The GDV fund’s top holdings are also nearly unchanged, with the only notable difference being the addition of Bank of New York Mellon (BK) vs. the removal of Swedish Match AB (acquired by Phillip Morris in late 2022) (Figure 4 and 5).
Figure 4 – GDV top 10 holdings, December 2022 (gabelli.com)
Figure 5 – GDV top 10 holdings, December 2023 (gabelli.com)
In fact, with annual portfolio turnover of only 10-15%, it is not surprising that there has been little change in GDV’s portfolio (Figure 6). Basically, what you see is what you get with the GDV fund.
Figure 6 – GDV has very low portfolio turnover (GDV 2023 semi-annual report)
Returns Continue To Lag Peers
GDV’s low portfolio turnover would be great if the fund actually held a winning portfolio. However, in GDV’s case, it holds an underperforming portfolio that continued to underperform in 2023. The GDV fund returned 12.2% in 2023, significantly below the S&P 500 Index’s 26.1%, as modeled by the SPDR S&P 500 ETF Trust (SPY) (Figure 7).
Figure 7 – SPY historical returns (morningstar.com)
In fact, the GDV fund has also underperformed most of its peers, ranking bottom quartile on almost all timeframes, from 1 year to 15 years (Figure 8).
Figure 8 – GDV is a bottom quartile fund (morningstar.com)
High Fees For Underperformance
One issue with the GDV fund is its expenses. The GDV fund charges 1.38% in net expenses compared to just 0.09% for the SPY ETF (Figure 9). So right off the bat, investors have to climb a sizeable hurdle just to break even relative to the S&P 500.
Figure 9 – Investors are paying high expenses for underperformance with GDV (Seeking Alpha)
But Distributions Well Covered
The only positive thing I can say about the GDV fund continues to be its $0.11 / month distribution, which annualizes to a 6.0% forward yield (Figure 10).
Figure 10 – GDV 6.0% distribution well covered (Seeking Alpha)
Based on the fund’s historical returns, the GDV’s 6.0% yield remains well-covered and sustainable.
Build Your Own High Yielding Alternative
However, investors should not base their investment decisions purely on an investment’s yield. Although the GDV fund pays a much higher distribution yield compared to the SPY ETF, it is simply realizing capital gains and paying that out to investors. Investors can easily create their own high-yielding alternative by buying a passive market ETF like the SPY ETF and withdrawing a set amount every month.
For example, assume investors invested $10,000 equally in the GDV fund and the SPY ETF, reinvested the distributions, and withdrew a monthly $50 (~6% annual rate) (Figure 11).
Figure 11 – Building a high-yield alternative by setting fixed withdrawals (Author created with Portfolio Visualizer)
From GDV’s inception in December 2003 to December 2023, the GDV portfolio would have an ending balance of $11,557 or a growth of 0.7% p.a. while the SPY portfolio would have a final balance of $23,329 or a 4.3% p.a. growth rate (Figure 12).
Figure 12 – GDV vs. SPY (Author created using Portfolio Visualizer)
So while GDV barely covered the 6% withdrawal rate, an investment in SPY would have amply covered the withdrawals with spare capital to reinvest and grow.
Readers should note that the GDV portfolio also has much higher volatility (St. Dev. of returns of 19.9% vs. 14.9%) in addition to lower returns.
Conclusion
The Gabelli Dividend & Income Trust focuses on dividend-paying equities and other income-generating securities to deliver high portfolio returns. Unfortunately, the GDV fund has not lived up to its promise, with total returns consistently lagging the market and peers.
While the GDV fund pays a generous monthly distribution with a forward yield of 6.0%, I believe investors can replicate the same income stream with an investment in passive ETFs and a set withdrawal amount that will outperform in terms of total returns.
I continue to advise investors to look elsewhere.
