Preferred Stock of Closed End Funds (CEFs)

Preferred stocks of closed end funds (CEFs) tend to be some of the safest preferred stock in existence. This is because of the requirements that the CEF have at least 200% asset coverage of “senior securities” which means debt and preferred stocks.  While technically the coverage ratio can stay below for a long time the fund will be unable to pay common dividends or buy back common shares while they lack the asset coverage ratio.

The Investment Company Act of 1940 (sec 18) governs closed end funds–you can read it here.

As you can see in the chart below MOST of the issues are solidly investment grade.

It is CAUTIONED that most of these issues are perpetual preferreds meaning they are sensitive to interest rate movements.

In this case safety of the security doesn’t mean safety of the share price. While the shares are extremely safe the share PRICE can be decimated if interest rates move strongly higher.

We note that BDC’s are organized as closed end funds, but we do NOT include them here.

We note that the issue from Kayne Anderson and those from Oxford Lane and RiverNorth are term preferreds thus they have mandatory redemption dates.

A click on the ticker symbol takes you to the issue detail page.

The few issues highlighted in Grey are Month Payers.

Asset coverage is calculated by dividing total assets by total preferred stock liquidation value

** in the Asset Coverage column indicates debt and preferred leverage

CLICK THE TAB AT THE TOP OF THE LIST TO SORT BY ALPHA OR BY CURRENT YIELD

Dividends paid by preferred stocks of closed end funds may be qualified or may not be. Many times they will include a return of capital. If this is important to you go to the CEF website and check the most recent tax data that they will have available. There are no hard and fast rules as to whether the dividend is qualified.

40 thoughts on “Preferred Stock of Closed End Funds (CEFs)”

  1. Does anyone know which of these funds have mandatory redemption dates? It would be a nice place to park some money without inflation risk. Thanks.

    1. Assuming the info is correct when you click on the symbol I now see the information. I still don’t know if you can force TY to buy at $55 at any time?

        1. Thank you. It appears it is only the higher risk ones that have a term date. None of the Gabelli or Alliancz.

          1. Brett – Note that some of the Gabelli issues have puts which is as good as a mandatory redemption date from the owner’s point of view because it then is in your power, not theirs, to make that date the redemption date… Once the date occurs most frequently they become perpetuals so the characteristics by which the market values them changes frequently dramatically so most of the time you don’t want to miss putting them back on the put date, or at least not on the last put date as a few of these have had multiple put dates.

    2. 5/28/21
      I note there are a lot of Q&As on this thread so thought I’d offer a tool you might find of use: https://www.quantumonline.com/search.cf
      If you know the symbol for the fund or its manager, you can obtain details on the call periods, ratings, etc. Quantumonline is a free service and very useful in researching your preferred stock choices.

  2. Can you for force TY to buy it’s preferred shares from you at $55 if interest rates rise significantly?

  3. What’s the correlation between these CEF preferreds and other assets? I would think they’re most like HY bonds vs say equity or short duration Tsys.
    If the long end of the curve continues to creep higher, these would start to hurt…

    1. Hi DD,
      I stumbled upon this screener the other day. I don’t think they have correlations for preferred stocks individually, but they do have them for preferred ETF’s. This can at least give you a starting point. They only give you so many “free” looks (but I just clear my browser and go back in).

      https://www.etfscreen.com/price-chart.php?s=PFF

      NWGG

  4. I’m new to preferreds and stumbled onto an announcement in the news for RF that has me wondering. Is it common for a company to have a preferred dividend of $14 dollars a share?

    1. Dennis – Welcome to the fray…. I’m guessing what you need to do is familiarize yourself with the difference between preference shares, which the RF $25 preferreds are and associated preferred stock… it looks complicated at first but it’s not really… Start reading prospectuses a bid and you’ll get the hang of it.. Try this RF prospectus – https://www.sec.gov/Archives/edgar/data/1281761/000119312514160111/d712697d424b2.htm The very first paragraph says the following “We are offering 20,000,000 depositary shares each representing a 1/40th ownership interest in a share of our 6.375% Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series B, par value $1 per share (“Preferred Stock”), with a liquidation preference of $1,000 per share of Preferred Stock (equivalent to $25 per depositary share). As a holder of depositary shares, you will be entitled to all proportional rights and preferences of the Preferred Stock (including dividend, voting, redemption and liquidation rights). You must exercise these rights through the depositary.” So I think you’re seeing the announcement pertaining to the preferred shares but RF preference shareholders are entitled to 1/40 of the amount.

  5. what is perpetual versus , i guess, non perpetual ? specifically, which of the 6 or 7 are NOT perpetuals ? is there a way to tell by loking at the table ? thanks

    1. Perpetual vs. Term. The surest way to tell is by looking up the prospectus for any given issue. In the table, click on the ticker, which is a link to the detail page for that issue. Scroll down till you see a blue bar with a link to the prospectus.

      Note, however, that even Perpetual’s most often have a first call date (given in the grey info box on the detail page for the issue). The prospectus will give info on that first call date as well.

      1. so, whether its a perpetual ( with that name , id assume it cannot be called) or term, they can both be called ? if so, what other aspect of a perpetual separates it from term ? thanks in advance

        1. bob t – It sounds as though you’re just starting out in this field so welcome aboard – you’ve come to the right place. Obviously not knowing exactly how much you do or do not know, I would suggest you get used to reading prospectuses of issues you consider to be of interest as you will learn a lot from that document. A search around this site will lead you to links to most prospectuses or alternatively, you can find links at quantumonline.com.

          Specific to your question, “perpetual” is differentiated from “term” by being an issue that the issuer is never obligated to retire. It will not have a stated maturity at all. That does NOT mean that the issuer cannot retire it some day by calling it, only that he’s not obligated to… These days practically every new issue comes with an ability of the issuer to call it in eventually AT THEIR OPTION, even perpetuals, usually after the first 5 years (barring special circumstances) however, occasionally an issue will be issued as non-callable, but that’s far and away the exception. I hope this helps get you started.

          1. thanks for the reply 2 whiteroses, thats the explanation i was looking for. thanks bob t

        2. Bob, Perpetual preferred puts the asymmetric risk totally in your lap. Most newly issued pereptuals have the company optional choice of redemption if it favors them. Otherwise they can keep them outstanding. And when or if rates rise this could have an unpleasant effect on pricing of the preferred. Especially since many have been priced recently in very low yield environment. Thus it is quite possible in time one could never see the issue ever return back to “par” price. There are preferreds on market that have been callable since 1940s, and only recently have returned to par, after being way under par for the better part of 60-70 years running.

  6. Is it possible to determine whether a fund’s payouts are qualified (lower tax rate) or not?

    1. Sometimes. Tax treatment by the fund depends on the underlying assets. Ignoring ROC, take a look at the funds holdings. A fund made up of mostly QDI issues will make mostly QDI distributions, and vice versa. Some funds will even give you the figure somewhere in the fund literature.

  7. Would be nice to see yield to worst rather than current yield. Many issues are priced at a premium and current yield is misleading.

  8. 2 questions.
    1) how do these funds “afford” the preferred dividends? cash flow/dividends from underlying are typically less than the payout on the preferred. Does the fund sell shares to payout the preferred?
    2) is the expense ratio on preferred the same as main series?

    1. 1) pay it out from realized capital gains or return of capital if they don’t have gains to make up the shortage (if any)
      2) expenses are computed on a gross assets basis for closed end, and don”t change by class like open ends

    2. DD. They use leverage to borrow at a lower rate than the rate they make on the investments in their portfolio. Morningstar, cefconnect and the Closed End Fund’s website publish how much of the fund is invested using leverage.

  9. Does anyone have any concerns of investing in preferreds of a private closed end fund llke PRIF- Priority Income Fund Preferreds? went to their website. Looks interesting. Thoughts. Does anyone else own these? Concerns?

    1. David–I own the PRIF-D 7% issue–small quantity. If you are to believe their net asset values over time they have performed much better than Eagle Point Credit or Oxford Lane–all of them are CLO holders. I would never want to own the common as their fees are massive, but as a senior security holder I have some leverage protection–at least to the point of a recession at which point I might exit.

    2. The PRIF series is from PSEC (BDC)- just a warning- lots of DD with those guys.
      BDC BUZZ and others on seeking alpha have written reams on it.

  10. Thanks for the list, Tim…. I’ve been meaning to review this category myself, so now I’ve got a starting point…. I think there ought to be a subcategory in your list for those preferreds that will and do ACT as if they are term preferreds because of the existence of various puts as have been discussed at various times on this site… That would include GGO-A, GLU-B, GDL-C, and maybe others…. I’ll also mention you overlooked one as a term preferred, SPE-B. Prospectus says “In addition to the foregoing, all outstanding shares of Convertible Preferred Stock as of August 19, 2021 (five years from the Expiration Date) will be mandatorily redeemed at a price of $25.00 per share of Convertible Preferred Stock held on such date.” p.12.

    1. Hi 2wr–yes SPE-B is on the list. I may just ‘filet’ out some of the special ones you mention.

      1. Then the number in your CAUTION regarding issues that are not perpetuals should be 7, not 6…. yeah I know, just what you need, a pesky nit-picker……. lol

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