Cohen & Steers REIT and Preferred and Income Fund (RNP) is our Top Pick for more conservative income-minded investors in 2023, declares Rida Morwa, income expert and founding partner of High Dividend Opportunities.
Cohen & Steers REIT and Preferred and Income Fund is a REIT-focused closed-end fund (CEF) managed by Cohen & Steers. Unlike other REIT-oriented CEFs, this fund carries zero leverage.
Why is this important? CEFs are forced to balance covering their distributions and the cost of their leverage. With rising interest rates and higher inflationary pressures persisting, many highly leveraged CEFs are being forced to cut their distributions and no longer pay as high income to their holders. RNP avoids this altogether.
Furthermore, RNP had the rare issue of making too much money in 2022 and having to pay out a hefty special dividend of over $1 per share. How was this the case? Well, it is in part due to its lack of leverage, RNP doesn't have higher expenses like other funds. The other half of the equation is the quality of its holdings. RNP invests 50/50 in REIT common shares and preferred securities.
Rents are rising at the fastest rate we've seen in decades, thanks to inflation. REITs are seeing the benefits of inflation immediately, while the negative impact of higher interest rates won't have a material impact on earnings for another 4+ years. Even then, it is a "maybe" impact, as it is very likely that sometime in the next few years, the Fed might cut rates again.
Preferred shares have also seen headwinds from rising interest rates. As "fixed-income" style investments, their prices have fallen with interest rates — though they still produce the same amount of income.
Put them together, and you have a great place to earn a solid income while having the potential for significant capital gains when the Fed pivots back to being dovish. We don't need to predict when that will happen. We can just kick back, relax and collect our dividends, knowing that sooner or later, it will happen.
RNP is paying a strong 7% yield in monthly payments to your account. The split REIT and preferred focus allows investors to enjoy income from stable sources while we wait for the Federal Reserve to turn dovish and start cutting rates down the road.
Many of your life's bills come monthly, I love to have income arrive monthly as well. What's not to love about this high-yield fund with a growing dividend that arrives monthly and is directly tied to an asset class that is about to have another record year?