ET - FLC: Preferred Stocks Are Doing Well But Don't Ignore The Risks

2024-05-08 15:49:30 ET

Summary

• The Flaherty & Crumrine Total Return Fund has a lower yield than its peers, making it less attractive as an income vehicle.
• The FLC closed-end fund's performance has been negatively impacted by its high level of leverage and substantial losses when interest rates rose.
• The fund has recently increased its distribution, but its past distribution cuts and failure to cover distributions with net investment income are concerning.
• Preferred stocks are doing well despite rising yields in the investment-grade bond market, which could present risks if the Fed does not cut rates significantly in 2024.
• The fund is trading at a very attractive discount, but investors are advised to consider the risks before purchasing its shares.

The Flaherty & Crumrine Total Return Fund ( FLC ) is a fairly popular closed-end fund, or CEF, among investors who are seeking to earn a high level of income from the assets in their portfolios. Unfortunately, like all the closed-end funds from this particular fund house, the Flaherty & Crumrine Total Return Fund is nowhere near as attractive an income vehicle as it once was. The fund yields 6.70% at the current price, and while this is better than many other things in the market, it still compares very poorly to the fund’s peers. We can see this here:

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