The Great Yield Mirage

Be wary of yields that seem too good to be true.

After I recently praised electric-utility stocks and funds that invest in them as underappreciated sources of tax-friendly, 5% dividend yields, a reader named Mathew took me to task for omitting Gabelli Utilities Fund. The fund's Class AAA shares (symbol GABUX) "currently yield a dividend" of 14%, with no upfront sales load and reasonable expenses, Mat wrote.

Obviously, a 14% yield catches the eye. Gabelli Utilities pays Mat a fixed 7 cents a month per share. That's 84 cents per year. Divide that by the fund's net asset value (NAV) per share of $5.99 and you get 14%. So there is a veneer of truth in what Mat says.

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Jeffrey R. Kosnett
Senior Editor, Kiplinger's Personal Finance
Kosnett is the editor of Kiplinger's Investing for Income and writes the "Cash in Hand" column for Kiplinger's Personal Finance. He is an income-investing expert who covers bonds, real estate investment trusts, oil and gas income deals, dividend stocks and anything else that pays interest and dividends. He joined Kiplinger in 1981 after six years in newspapers, including the Baltimore Sun. He is a 1976 journalism graduate from the Medill School at Northwestern University and completed an executive program at the Carnegie-Mellon University business school in 1978.