Unlocking 6.9% Yield with Cohen & Steers Infrastructure Fund (UTF)

The Cohen & Steers Infrastructure Fund (UTF) is a closed-end fund investing in diversified infrastructure companies across various sectors, including utilities, pipelines, toll roads, airports, railroads, ports, and telecommunications. The fund offers a 6.9% monthly payout and is considered a significant investment opportunity due to its diversified portfolio and consistent returns.

The Cohen & Steers Infrastructure Fund (UTF), listed on the New York Stock Exchange (NYSE), is a diversified closed-end fund that invests in various infrastructure companies. These include utilities, pipelines, toll roads, airports, railroads, ports, and telecommunications. The fund offers a 6.9% monthly payout, making it an attractive option for income investors.

UTF's investment thesis is supported by several long-term tailwinds in the infrastructure sector. Key drivers include the growing demand for energy and electricity infrastructure due to trends such as electrification and the expansion of data centers. The International Energy Agency (IEA) projects that data center power use will more than double by 2030, with significant growth in global electricity demand anticipated. Additionally, there is a massive overhaul and buildout of the nation's electric grid and EV charging station infrastructure, driven by substantial investments. The United States' Broadband Equity, Access, and Deployment (BEAD) program is investing $42.45 billion to accelerate fiber infrastructure buildout. These factors collectively suggest a robust growth environment for infrastructure companies, potentially leading to higher valuation multiples and faster dividend growth rates.

UTF's performance has been impressive, with an 11.01% total return CAGR over the past decade, compared to an 8.82% CAGR for the broader Morningstar U.S. CEF equity sector. It has also slightly outperformed the Utilities Select Sector SPDR® Fund ETF (XLU). However, the fund's high expense ratio of 3.86% and significant leverage ratio of 27.4% suggest that its management fee is relatively high. This structure necessitates strong performance to justify the fund's structure, with some outperformance potentially attributed to leverage during periods of strong utility performance.

Despite its attractive income profile and long-term track record, UTF is not currently a compelling investment. It trades at a 3.26% premium to its net asset value (NAV), which is higher than its historical average. Given the strong recent performance of utilities and infrastructure, underlying holdings may not be attractively priced. Therefore, while UTF remains a hold for income investors already holding it, initiating a new position is not advisable due to its current valuation.

Investors should consider UTF's diversified portfolio, which includes blue-chip holdings such as NextEra Energy, Inc. (NEE), TC Energy Corporation (TRP), American Tower Corporation (AMT), National Grid plc (NGG), Duke Energy Corporation (DUK), The Southern Company (SO), Dominion Energy, Inc. (D), and Enbridge Inc. (ENB). However, the fund's broad diversification and high leverage may reduce the alpha that active management can deliver.

References:
[1] https://seekingalpha.com/article/4817073-utf-monthly-payout-infrastructure-fund-you-cant-ignore