Yield Above 10%

A Recent Distribution Hike For This Preferred Securities Fund

Every week, we’ll profile a high yield investment fund that typically offers an annualized distribution of 6-10% or more. With the S&P 500 yielding less than 2%, many investors find it difficult to achieve the portfolio income necessary to meet their needs and goals. This report is designed to help address those concerns.

U.S. Treasuries have had some very mixed performance over the past year, but other securities within the fixed income space have been doing just fine. Preferreds, for example, have returned more than 10% over the past year. Their combination of high yield and relative stability has been especially enticing for yield seekers who may be anticipating the Fed coming in at any moment and cutting rates. Because preferreds sit higher on the capital structure than common stocks (although below corporate bonds), there is a bit of protection built in should the issuer’s financial condition go south, something that may soon become more important as corporate debt issues loom as part of the big refi boom ahead of us.

The largest CEF targeting preferreds is the Nuveen Preferred & Income Opportunities Fund (JPC). Its straightforward selection process does a good job of providing broad sector exposure without subjecting shareholders to undue risk. In some ways, it’s not that different from a standard index fund focused on preferreds, but the use of leverage and the ability to diversify opportunistically give it some potential advantages (or disadvantages) relative to other products.