Gabelli Equity Trust 10% Distribution Policy Reaffirmed and Declared Second Quarter Distribution of $0.15 Per Share

Rhea-AI Summary

The Board of Directors of Gabelli Equity Trust (NYSE:GAB) reaffirmed its 10% distribution policy by declaring a $0.15 per share cash distribution, payable on June 21, 2024, to shareholders of record on June 13, 2024. The Fund aims to pay a minimum annual distribution of 10% of its average net asset value within a calendar year. This policy is subject to modification by the Board at any time. The distribution may consist of income, capital gains, or return of capital. In 2024, distributions are estimated to include 2% from net investment income, 14% from net capital gains, and 84% return of capital. Shareholders will be notified of the tax treatment in early 2025.

Positive

• Reaffirmation of 10% distribution policy supports shareholder income.
• Declared second-quarter distribution of $0.15 per share provides immediate cash flow.
• Fund aims to pay at least 10% of average net asset value annually, offering predictability.
• Distributions include income and capital gains, potentially favorable for tax optimization.

Negative

• 84% of 2024 distributions are estimated to be return of capital, not actual income.
• Future distributions are not guaranteed and can be modified by the Board.
• Potential tax implications, including 3.8% Medicare surcharge for high-income investors.
• Uncertainty about the final determination of distribution sources, which may affect tax reporting.

Insights

Financial Analyst

The Gabelli Equity Trust's reaffirmation of its 10% distribution policy, along with the declared second quarter distribution of $0.15 per share, could be viewed favorably by income-focused investors.

The Fund continues to commit to a 10% distribution rate, based on the average net asset value (NAV) of the Fund. This can be appealing to those seeking reliable income, but it is essential to understand that most of this distribution, approximately 84%, is deemed a return of capital. This means the Fund is essentially returning a portion of the shareholder’s original investment rather than generating this return through earnings.

While the return of capital is generally not taxable and can be beneficial in the short term by providing cash flow, it reduces the shareholder’s cost basis and may lead to higher capital gains taxes when the shares are eventually sold.

Additionally, the policy of a 10% distribution rate is subject to modification and is not guaranteed, which introduces a level of uncertainty. For retail investors, it is important to consider both the potential benefits of regular income and the risks associated with the reduction in cost basis over time and the guarantee of policy continuation.

Overall, while the reaffirmed distribution policy and declared payout provide a consistent income stream, the high return of capital component and inherent risks should be carefully considered.

Tax Expert

From a tax perspective, the reaffirmed distribution policy of Gabelli Equity Trust presents both advantages and potential challenges for investors.

The fact that approximately 84% of the distribution is deemed a return of capital, which is generally not taxable, can be advantageous for investors looking for tax efficiency in the short term. This reduces the immediate tax burden, providing more cash flow to the investor.

However, a significant return of capital reduces the cost basis of the investment, potentially increasing capital gains taxes when the shares are sold. Shareholders need to be mindful of this aspect, as it can lead to a larger tax liability in the future.

Additionally, the remaining components of the distribution, including long-term capital gains (14%) and net investment income (2%), will be taxed according to the applicable tax rates.

Given the complexities involved in the tax treatment of these distributions, it is advisable for investors to consult with a tax professional to fully understand the implications and plan accordingly.

RYE, N.Y., May 16, 2024 (GLOBE NEWSWIRE) -- The Board of Directors of The Gabelli Equity Trust Inc. (NYSE:GAB) (the “Fund”) reaffirmed and satisfied its 10% distribution policy by declaring a $0.15 per share cash distribution payable on June 21, 2024 to common stock shareholders of record on June 13, 2024.

The Fund intends to pay a minimum annual distribution of 10% of the average net asset value of the Fund within a calendar year or an amount sufficient to satisfy the minimum distribution requirements of the Internal Revenue Code for regulated investment companies. The average net asset value of the Fund is based on the average net asset values as of the last day of the four preceding calendar quarters during the year. The net asset value per share fluctuates daily.

Each quarter, the Board of Directors reviews the amount of any potential distribution from the income, realized capital gain, or capital available. The Board of Directors will continue to monitor the Fund’s distribution level, taking into consideration the Fund’s net asset value and the current financial market environment. The Fund’s distribution policy is subject to modification by the Board of Directors at any time, and there can be no guarantee that the policy will continue. The distribution rate should not be considered the dividend yield or total return on an investment in the Fund.

All or part of the distribution may be treated as long-term capital gain or qualified dividend income (or a combination of both) for individuals, each subject to the maximum federal income tax rate for long term capital gains, which is currently 20% in taxable accounts for individuals (or less depending on an individual’s tax bracket). In addition, certain U.S. shareholders who are individuals, estates or trusts and whose income exceeds certain thresholds will be required to pay a 3.8% Medicare surcharge on their "net investment income", which includes dividends received from the Fund and capital gains from the sale or other disposition of shares of the Fund.

If the Fund does not generate sufficient earnings (dividends and interest income, less expenses, and realized net capital gain) equal to or in excess of the aggregate distributions paid by the Fund in a given year, then the amount distributed in excess of the Fund’s earnings would be deemed a return of capital. Since this would be considered a return of a portion of a shareholder’s original investment, it is generally not taxable and would be treated as a reduction in the shareholder’s cost basis.

Long-term capital gains, qualified dividend income, investment company taxable income, and return of capital, if any, will be allocated on a pro-rata basis to all distributions to common shareholders for the year. Based on the accounting records of the Fund currently available, each of the distributions paid to common shareholders in 2024 would include approximately 2% from net investment income, 14% from net capital gains and 84% would be deemed a return of capital on a book basis. This does not represent information for tax reporting purposes. The estimated components of each distribution are updated and provided to shareholders of record in a notice accompanying the distribution and are available on our website (www.gabelli.com). The final determination of the sources of all distributions in 2024 will be made after year end and can vary from the quarterly estimates. Shareholders should not draw any conclusions about the Fund’s investment performance from the amount of the current distribution. All individual shareholders with taxable accounts will receive written notification regarding the components and tax treatment for all 2024 distributions in early 2025 via Form 1099-DIV.

Investors should carefully consider the investment objectives, risks, charges, and expenses of the Fund before investing. For more information regarding the Fund’s distribution policy and other information about the Fund, call:

Molly Marion
(914) 921-5681

About The Gabelli Equity Trust
The Gabelli Equity Trust Inc. is a diversified, closed-end management investment company with $2.0 billion in total net assets whose primary investment objective is long-term growth of capital. The Fund is managed by Gabelli Funds, LLC, a subsidiary of GAMCO Investors, Inc. (OTCQX: GAMI).

NYSE – GAB
CUSIP – 362397101

Investor Relations Contact:
Molly Marion
(914) 921-5681
mmarion@gabelli.com

FAQ

What is the recent distribution declared by Gabelli Equity Trust (GAB)?

Gabelli Equity Trust (GAB) has declared a $0.15 per share cash distribution, payable on June 21, 2024.

What is the distribution policy of Gabelli Equity Trust (GAB)?

The Fund has a 10% distribution policy, aiming to pay a minimum annual distribution of 10% of its average net asset value.

When is the record date for the recent Gabelli Equity Trust (GAB) distribution?

The record date for the distribution is June 13, 2024.

What portion of Gabelli Equity Trust (GAB) 2024 distributions is estimated to be return of capital?

Approximately 84% of the 2024 distributions are estimated to be return of capital.

Are future distributions by Gabelli Equity Trust (GAB) guaranteed?

No, future distributions are not guaranteed and can be modified by the Board at any time.

What are the tax implications of Gabelli Equity Trust (GAB) distributions?

Distributions may be taxed as long-term capital gains, qualified dividend income, or return of capital, each with different tax treatments.