Tri-Continental's Dividend Surge: A Safe Haven for Income Investors in a Rising Rate World

The investment landscape is shifting. As central banks globally tighten monetary policy, income investors face a critical question: Where can I find reliable dividends and capital preservation in a rising rate environment? Tri-Continental Corporation (NYSE: TY) has emerged as a compelling answer, recently announcing a dividend hike that underscores its resilience. This closed-end fund, managed by Columbia Threadneedle, has delivered dividends for 81 consecutive years, a streak unmatched by most peers. But what makes this dividend hike sustainable, and how does it position investors for total return success?

The Dividend Hike: A Strategic Move or a Risky Gamble?

Tri-Continental’s recent dividend actions signal confidence. In March 2025, it declared an ordinary income distribution of $0.29 per share, a 5% increase from the previous quarter’s $0.2766. This follows a dramatic $2.2370 special dividend in November 2024—a one-time payout reflecting capital gains. While the special dividend skewed annual payout variability, the core ordinary dividend has trended upward, with a 2% increase in the past year.

Critics may question whether this growth is sustainable. The answer lies in the fund’s dividend cover ratio, which stands at 1.5x—meaning earnings are 1.5 times the dividend payout. Combined with a forward Payout Ratio of 100% (calculated using FY1 EPS of $2.81), this suggests earnings are sufficient to cover dividends without overextending. However, investors must note that 75% of Tri-Continental’s portfolio is in fixed-income securities, which face headwinds in a rising rate environment.

Why the Dividend Machine Keeps Ticking

Tri-Continental’s longevity as a dividend payer stems from three pillars:
1. Diversified Income Streams: The fund invests across U.S. equities and fixed-income, with a focus on large-cap companies. This diversification shields it from sector-specific volatility.
2. Leverage Discipline: While it uses preferred stock for leverage (amplifying returns during upswings), its debt-to-equity ratio remains conservative, at 30%, limiting risk.
3. Active Management: Columbia Threadneedle’s quantitative strategies target undervalued securities, ensuring consistent cash flows.

The fund’s 3.9% dividend yield—well above the S&P 500’s 1.5%—offers a compelling income floor. But dividends alone don’t guarantee success. Investors must assess total return potential, which combines yield with capital appreciation.

Total Return Potential: Yield + NAV Appreciation

Tri-Continental trades at a 5% discount to its Net Asset Value (NAV), a common feature of closed-end funds but also an opportunity. If the discount narrows to historical averages (say, 2%), shareholders could see an 8% uplift in share price, even if NAV remains flat.

In a rising rate environment, fixed-income-heavy funds like TY face challenges. However, the fund’s floating-rate instruments and short-duration bonds mitigate interest rate risk. Moreover, its equity exposure to large-cap firms with pricing power (e.g., healthcare, technology leaders) offers stability.

Risks to Consider

No investment is risk-free. Tri-Continental’s leverage amplifies volatility, and its fixed-income focus could lag if rates rise sharply. Additionally, the special dividend in late 2024 may not recur, compressing future payout growth. Investors must also verify its expense ratio (not disclosed in filings) to ensure it doesn’t erode returns.

The Bottom Line: A Conservative Bet for Income Seekers

Tri-Continental isn’t a high-octane growth play. It’s a defensive income vehicle for investors prioritizing stability. With an 81-year dividend streak, a covered payout ratio, and upside from NAV convergence, it offers a rare blend of safety and yield.

Act Now:
- Buy before the ex-dividend date (typically 10 days before payout) to lock in the next distribution.
- Monitor the discount-to-NAV ratio—a narrowing gap signals undervaluation.
- Diversify: Pair TY with low-volatility equities or short-term Treasuries to balance risk.

In a world of uncertainty, Tri-Continental’s dividend hike isn’t just a number—it’s a promise. For income investors willing to look beyond headline rates, this 81-year-old dividend titan could be the anchor your portfolio needs.

Investment decisions should consider individual risk tolerance. Past performance does not guarantee future results.