Nuveen Variable Rate Preferred & Income Fund

NPFD

Market cap $459M

Nuveen Variable Rate Preferred & Income Fund has delivered strong total returns since our last update. This was partially driven by NPFD's discount having narrowed from over 8%, making the current valuation less compelling and justifying a "Hold" rating. The fund's 10.09% distribution yield relies on capital gains, with net investment income coverage at only around 70%, even after the distribution trim.

Rose's Income Garden (RIG) portfolio emphasizes high-yield monthly payers across BDCs, ETFs, and CEFs, supporting steady income generation. Capital Southwest is internally managed, yields 11.68%, trades at a premium, and is a hold with potential for adding on dips. PennantPark Floating Rate yields 15.22%, trades at a discount, but faces price pressure; considered a speculative hold due to dividend risk.

Nuveen Variable Rate Preferred & Income Fund is maintained at a hold rating due to limited operating history and inconsistent earnings coverage. NPFD offers a 9.8% dividend yield, improved net investment income, and trades at a 6.07% discount to NAV, making valuation more attractive. The fund's portfolio is heavily weighted toward investment-grade financials, providing credit quality but exposing returns to interest rate movements.

Rose's Income Garden portfolio allocates 25% to finance, with a focus on high-yield preferred shares and closed-end funds. DFP and NPFD are highlighted as attractive CEFs, both trading at discounts to NAV and offering rising or stable monthly distributions above 6%. Six preferred shares, including AGNCN, DLNG.PR.A, NLY.PR.F, RITM.PR.D/E, and SEAL.PR.B, are recommended for their high yields and careful attention to call dates.

Nuveen Variable Rate Preferred & Income Fund offers a high 10.12% yield, outperforming peer indices and most comparable funds over the past three years. NPFD's distribution may be at risk, as variable-rate securities deliver falling income as short-term rates decrease. Shares currently trade at a modest 2.02% discount to NAV, but this is less attractive than the fund's historical average and some peers.

Rose's Income Garden (RIG) portfolio features 81 investments, with 11 monthly payers across BDCs, ETFs, and CEFs focused on income generation. CSWC and PFLT are highlighted BDCs, offering high yields; CSWC is a strong buy on dips, while PFLT is a speculative buy, despite recent pressure. RIG includes three crypto-related ETFs (BITO, ETHU, SSK), providing exposure to digital assets with variable payouts, and two bond-focused ETFs (JBBB, SHYG) as cash alternatives.

NPFD offers a high 10.5% yield and monthly payouts, making it attractive for income investors in a high interest rate environment. The fund's variable rate strategy and focus on investment grade financials provide resilience, but concentration and leverage increase risk. NPFD trades at a 4.2% discount to NAV, but its short history and inconsistent income generation raise concerns about dividend sustainability.

NPFD offers high, tax-advantaged monthly income and low interest rate risk, but its current discount to NAV is modest at under 4%. Distribution coverage is weak at 59%, with a significant portion of payouts as the return of capital, raising sustainability concerns. Given better alternatives in the preferred CEF space, I recommend swapping out NPFD for PFO or FLC, especially in tax-advantaged accounts.

The Nuveen Variable Rate Preferred & Income Fund offers a high 10.75% yield, outperforming major domestic fixed-income indices, but carries higher risk due to leverage. Despite a 6.19% share price increase since May 2024, the fund's net asset value declined by 0.85%, indicating potential overvaluation. The fund's most recent holdings report suggests that its exposure to variable-rate securities is lower than one would expect.

Nuveen Variable Rate Preferred & Income Fund is now like a 'Buy' as the discount has widened back out. NPFD should benefit from lower borrowing costs as the Fed cuts its target rates, improving net investment income and distribution coverage. The fund sports an enticing double-digit distribution, though long-term distribution sustainability remains uncertain and is an area to watch.