Priority Income Fund: High-Yield Preferred Shares Offer Stability Amid Market Volatility

The Priority Income Fund (PRIF), a closed-end fund specializing in senior secured loans and collateralized loan obligations (CLOs), offers investors a range of preferred shares with attractive yields, though the often-cited 8.5% figure appears to stem from historical or misreported data. As of early 2025, its preferred shares provide steady income streams of up to 7%, backed by a robust portfolio and experienced management.

The Fund’s Core Strategy: Stability Through Senior Loans

PRIF invests 80%+ of its assets in senior secured loans and CLOs, which typically hold first-lien positions on borrowers’ assets. This structure prioritizes repayment in the event of default, reducing credit risk. The portfolio’s floating-rate nature further insulates it from interest rate fluctuations, as loans reset with market rates. As of late 2024, the fund held 2,225 loans across 1,400+ companies, with an impressively low 0.76% default rate in underlying loans. This diversification and conservative lending standards underpin its ability to sustain distributions.

Preferred Shares: Current Yields and Terms

The fund’s preferred shares, listed on the NYSE, offer fixed-term or perpetual structures with annualized yields ranging from 6% to 7% (see table below). Notably, Series D (7% due 2029) and Series K (7% cumulative) provide the highest income potential. While the 8.5% yield often referenced in headlines does not apply to current series, the fund’s common shares offered an 11.73% annualized distribution rate as of July 2024, though these are non-listed until 2026 at the earliest.

Series	Yield	Maturity	Distribution
Series D	7.00%	2029	$0.4375 quarterly
Series F	6.625%	2027	$0.414 quarterly
Series I	6.125%	2028	$0.3828 quarterly
Series K	7.00%	Perpetual	$0.4375 quarterly
Series L	6.375%	2029	$0.3984 quarterly

Key Considerations for Investors

1. Distribution Coverage: PRIF’s distributions are 92% covered by net investment income, with the remainder classified as a “return of capital.” While this reduces tax basis, it does not necessarily signal financial strain, given the fund’s strong asset quality.
2. Liquidity: Preferred shares trade on the NYSE, but bid-ask spreads may be wider due to lower trading volume. The common shares are set to list by 2026, potentially improving overall liquidity.
3. Redemption Risks: The April 2025 redemption of Series H (6% yield) demonstrates the fund’s strategy to manage its capital structure, though this may reduce income for holders of redeemed shares.

Risks to Monitor

• Interest Rate Sensitivity: While floating-rate loans mitigate duration risk, rising rates could pressure CLO valuations and net asset value (NAV).
• Credit Quality: Though defaults are low, economic downturns could strain borrowers in sectors like high-tech or healthcare.
• Return of Capital: Persistent distributions exceeding earnings may erode principal over time, requiring careful tax planning.

Conclusion: A Solid Choice for Income Seekers

Despite the 8.5% yield myth, PRIF’s preferred shares remain compelling for income-focused portfolios. The 7%+ yields of Series D and K, paired with a 92% distribution coverage ratio and Prospect Capital’s $8.3B track record, make them a stable alternative to traditional bonds. Investors should prioritize these higher-yielding series and monitor the fund’s transition to a listed structure, which may unlock further value.

For conservative investors, PRIF’s dividend consistency—with monthly payments since 2014—outweighs minor yield discrepancies. Just ensure to pair these shares with other fixed-income assets to balance interest rate and credit risks.

In a low-yield environment, PRIF’s preferred shares offer a disciplined path to income, provided investors understand their terms and the nuances of closed-end fund investing.