JPC Pays Out More Than It Generates: A Challenge for Income Funds

J Studios/DigitalVision via Getty Images. Income funds are an attractive option as market indexes approach all-time highs, providing a safer bet for investors. JPC, a dividend-paying fund, generates more income than it pays out, making it a potential investment opportunity for those seeking a stable income stream.

As market indexes hover near all-time highs, income funds have become an attractive option for investors seeking a safer bet. One such fund is the Nuveen Preferred & Income Opportunities Fund (NYSE: JPC), which generates more income than it pays out, making it a potential investment opportunity for those seeking a stable income stream.

JPC operates by investing at least 80% of its managed assets in preferred securities and other income-producing assets, with the remaining 20% allocated to corporate and municipal debt securities. This strategy aims to provide a high current income, with the fund currently offering a starting dividend yield near 10% [1].

Over the past twelve months, JPC's share price has increased by approximately 4%, while including all distributions, the total return jumps to around 15%. The fund has experienced a decline earlier in the year but has since recovered alongside the market's rally [1].

However, JPC faces challenges. It has been paying out more in distributions than it actually earns in income. For instance, in the latest semi-annual report, JPC generated a total increase in investment operations of $0.37 per share but paid out $0.40 per share for this period [1].

Moreover, JPC utilizes leverage, currently amounting to 36.51% of assets, which can amplify earnings but also losses. The fund's cost of leverage sits at 5.17%, which is quite high compared to interest rates in recent years [1].

Despite these challenges, JPC remains a potential investment for income-focused investors. Its high dividend yield and strong credit ratings for its investments make it an attractive option for those seeking a stable income stream. However, investors should be cautious and monitor the fund's performance closely, as interest rate sensitivity and the risk of dividend cuts remain significant concerns [1].

References:
[1] https://seekingalpha.com/article/4814698-jpc-cef-paying-out-more-than-it-actually-generates