DFP: Hard To Make A Case For This Preferred Fund

2025-02-10 10:22:34 ET

Summary

• The Flaherty & Crumrine Dynamic Preferred and Income Fund has underperformed recently, delivering a 2.53% total loss over the past three years.
• The fund's current yield of 6.72% is lower than its peers, making it less attractive for income-seeking investors.
• Despite its recent poor performance, the fund's current distribution appears sustainable, and it trades at a 7.51% discount to net asset value.
• The fund's high leverage and expense ratio are concerns, but its price is reasonable compared to peers, offering some potential value.
• This is one of the cheapest preferred stocks around, but it is hard to see any advantages over its peers.

The Flaherty & Crumrine Dynamic Preferred and Income Fund ( DFP ) is a closed-end fund that income-seeking investors may wish to consider as a means of achieving their goals. The fund has long been a pretty popular choice for this function, which is probably due to its performance over the ultra-low-interest rate period that prevailed in the markets over the decade following the Great Recession. From its inception on May 24, 2013, through the end of 2021, the Flaherty & Crumrine Dynamic Preferred & Income Fund outperformed the domestic preferred stock index ( PFF ) by a substantial margin:

This is before we even take the fund’s distribution into account, which would increase its total return to 113.83% over that period. The index only had a 57.03% total return over the same period, so this fund outperformed during a low-interest rate environment by quite a lot.

Unfortunately, its performance has fallen off a lot since then. Over the past three years, this fund has delivered a 2.53% total loss compared to the 3.55% total positive return from the preferred stock index:

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