Score an Inflation-Crushing 11%+ Yield on This Stock

Shah Gilani|June 19, 2023

After 17 months of rate hikes, inflation is still higher than the Fed would like it, and the Central Bank is expected to raise rates another two times this year.

Inflation just won’t come down, at least nowhere near the Federal Reserve’s 2% target rate – even after the Fed Funds Effective Rate has jumped from 0.08% in February 2022 to 5.07% right now.

In this week’s watchlist, I want to refocus our attention on inflation-beating investments, specifically Closed End Funds (CEF). In case you’re not familiar with CEFs, they are a type of mutual fund that issues a fixed number of shares through a single initial public offering (IPO) to raise capital for its initial investments. Its shares can then be bought and sold on a stock exchange, but no new shares will be created, and no new money will flow into the fund.

This week, I’m watching Nuveen Floating Rate Income Fund (JFR), which is a closed-end fund (CEF) that seeks to achieve a high level of current income by investing in a portfolio of adjustable-rate senior loans and other debt instruments.

The fund invests at least 80% of its managed assets in adjustable-rate loans; at least 65% of those must be senior loans secured by specific collateral.

The bottom line regarding JFR, when interest rates increase, the interest rates on the debt that JFR has issued also increases – and that creates more capital that can be passed along to investors in the form of distribution payments.

Speaking of which, JFR makes distribution payments every month. The current distribution of $0.0741 per month amounts to $0.8892 annually, which (based on the current price of $7.82) amounts to a whopping 11.37% yield.

That’s some serious cash!

In addition to the 11.37% yield, JFR is currently trading an 13.69% discount to its net asset value (NAV).

Regarding the JFR portfolio, the fund holds 472 holdings. 81.8% of which are senior loans. That’s important because it puts JFR first in line to be paid in the event there are problems with any of its loans.

Because JFR holds a portfolio of bonds, it tends to trade lower as interest rates rise. That’s fine. As interest rates rise, the interest that JFR collects on its loans will also increase and that will translate into higher payouts – and that translates into an even higher yield than the current 11.37% distribution rate.

I’m watching JFR for the income, but I’m also watching for a potential price breakout which could bring the current shares price in line with its NAV.

With inflation still on investor’s minds, I’ll be back next week with another inflation-beating investment idea.