COHEN & STEERS REIT & PREFERRED & INCOME FUND INC (RNP)

Cohen & Steers REIT & Preferred & Income Fund (RNP) is a closed-end investment fund that buys and holds a portfolio of real-estate investment trusts, preferred stocks, corporate bonds, and other income-paying securities — the kind that generate interest or dividends every quarter. The fund exists to serve a specific investor: someone in or near retirement who wants monthly income, who lacks the time or expertise to assemble a diversified portfolio of individual REITs and preferreds themselves, and who is willing to accept leverage and price volatility in exchange for a higher yield. Investors buy shares of RNP on the stock exchange, and the fund passes through cash distributions every month. Those distributions come from the dividends and interest the underlying holdings generate, plus capital gains when securities are sold at a profit, plus the fee spread the fund charges for its management.

“Monthly distributions higher than the fund can earn from its portfolio — the difference comes from selling securities or using leverage.”

This observation captures the central tension in RNP’s design. The fund promises distributions of 6–8% annually (or higher in market peaks), but its underlying portfolio of REITs and preferreds typically yields 4–5%. To bridge that gap, the fund uses leverage — borrowing money to invest more — and capital gains (selling appreciated holdings to fund distributions when income alone falls short). This works when markets rise; it strains when securities fall and the fund must realize losses or cut the distribution.

What the fund holds and why

A typical RNP portfolio is split across three broad categories. Real-estate investment trusts make up the largest slice — office buildings, apartments, data centers, warehouses, retail properties, and storage facilities across the United States and internationally. Each REIT owns and manages properties in its chosen niche and distributes most of its taxable income to shareholders, so REITs are the natural anchor for an income-focused fund.

Preferred stocks are the second pillar. These are hybrid securities issued by banks, insurance companies, and other corporations — they sit between bonds and common equity in the capital structure. Preferreds pay a fixed rate of interest (typically 5–8% annually) and have priority in a bankruptcy, which makes them less risky than common stock. But unlike bonds, they have no maturity date and cannot be called off easily by the issuer, so the price can fluctuate with interest rates and credit perceptions.

The remainder holds corporate bonds, mortgage-backed securities, and other debt instruments. These diversify the income stream and reduce the portfolio’s concentration in real estate and equities.

Leverage and distribution policy

RNP’s yield is enhanced by leverage — the fund borrows at short-term rates and invests the proceeds in longer-duration assets like REIT dividends and preferred stock coupons. If the cost of borrowing stays below the yield on the portfolio, leverage increases returns. When rates rise or the market stumbles, the math reverses, and leverage becomes a drag. This is why RNP’s share price can fall sharply during corrections while the distribution remains high — the fund is locked into paying out the distribution regardless of market conditions.

The distribution policy is important: the fund aims to pay out roughly 8% of its net asset value annually, split across twelve monthly payments. When markets rise and the portfolio gains value, the distribution is easy to sustain. When markets fall, the fund can only maintain the distribution by realizing gains from previous years, cutting into capital. Over long holding periods, this can erode the fund’s total return relative to the underlying securities.

Who this is for and the risks

RNP is most useful for investors who want a professionally managed bundle of income securities without the labour of selecting individual REITs or preferred stocks, who can tolerate price volatility in exchange for monthly cash, and who understand that the high distribution comes with leverage and the risk that capital can be deployed and potentially lost. Retirees who rely on distributions to cover living expenses are a core audience, as are investors who like the tax treatment of REIT and preferred dividends (often taxed at ordinary rates, not capital-gains rates).

The fund faces structural challenges. As interest rates rise, both preferred stocks and REITs come under pressure — preferreds become less attractive relative to bonds, and REITs face higher refinancing costs. A severe recession that impairs real-estate values or threatens bank solvency can tank the portfolio. The leverage amplifies swings in both directions. In a significant drawdown, the fund’s management may be forced to cut or suspend the distribution, which is typically when shareholders wish they could keep receiving it.

How to evaluate RNP

An investor considering RNP should compare the current distribution yield to the fund’s net asset value (NAV) per share, because if the share price trades at a discount to NAV, you are buying dollar’s worth of assets for less than a dollar. The fund’s expense ratio — typically around 0.7–1.0% annually — is reasonable for active management, but the leverage cost (borrowing expense) should be tracked separately. Look at how much of the distribution is covered by the actual income the portfolio generates versus capital depletion or sales. Check the historical share-price performance and the distribution history through a full market cycle — how far did the price fall in the last major correction, and how much of the distribution was maintained? Any prospective holder should read the fund’s annual report (SEC CIK 0001224450) to understand the current portfolio composition, the leverage ratio, and the yield assumptions management is working with.