High-Quality Preferred Stock with 6% Yield Potential: Gabelli Equity Trust

In the current market environment where common stocks appear overvalued, the authors are shifting their focus to high-quality, publicly traded preferred stocks with a 6% yield potential. They believe that fixed income instruments will perform better and are increasing their exposure to them.

In the current market environment, where common stocks appear overvalued, investors are increasingly turning to high-quality, publicly traded preferred stocks as a reliable income source. Preferred stocks, known for their high credit ratings and stability, offer an attractive yield potential of around 6% [1].

Gabelli Equity Trust (NYSE:GAB) stands out as a prominent player in the preferred stock market. Founded in 1986, Gabelli Equity Trust is a large fund with a market capitalization of approximately $1.67 billion and a total of 647 holdings [1]. The fund's distribution rate is 10.95%, with $0.1500 of dividends paid quarterly to shareholders. The effective leverage is around 18%, and the expense ratio is 1.59%, including 1% management fees [1].

Gabelli Equity Trust offers three preferred stocks: GAB.PR.G, GAB.PR.H, and GAB.PR.K. All are traded below par and rated by Moody's with an A1 credit rating. GAB.PR.G has a current market price of $20.77 and a stripped yield of 6.02%, while GAB.PR.H and GAB.PR.K have similar yields of 6.05% [1].

The preferred stocks from Gabelli Equity Trust are distinguished by their narrow spreads and high credit ratings. For instance, GAB.PR.H has a delta spread of -1.46%, making it a preferred choice among peers [1]. Additionally, GAB-H includes a clause that mandates redemption if the fund's leverage exceeds regulatory limits, providing an extra layer of protection against market shocks [1].

Comparatively, other preferred stocks with lower credit ratings trade at lower current yields. For example, BAC, MS, USB, and WFC, while treated somewhat better, are exposed to greater risks [1].

In conclusion, Gabelli Equity Trust's preferred stocks offer a stable yield of around 6% with very low risk and a high credit rating. They trade below par and provide good protections against market shocks, making them a more reliable choice compared to their peers. At a time when common shares appear overvalued, these preferred stocks present a reasonable alternative for investors seeking a secure income.

References:
[1] https://seekingalpha.com/article/4803120-high-quality-preferred-stock-with-6-percent-yield-potential-from-gabelli-equity-trust