Investment Opportunity: Attractive Value in Preferred Shares

The RiverNorth/DoubleLine Strategic Opportunity Fund (OPP), a closed-end fund (CEF) specialising in debt securities, has been attracting the attention of conservative investors due to the eroding share price of its common shares. Over the past five years, the common shares have dropped by more than 30%, making exposure to the preferred equity more appealing.

OPP, as reported in a previous article, has two specific series of preferred shares outstanding - Series A and Series B. The Series A preferred shares, trading under the ticker symbol OPP.PR.A, offer a cumulative dividend of $1.09375 per share per year. Meanwhile, the Series B shares, represented by OPP.PR.B, offer a higher yield of 6.50%, with a cumulative dividend of $1.1875 per share per year.

In the first half of 2025 (H1 2025), OPP needed to spend approximately $2.75M on preferred dividends. However, the preferred dividends were well-covered by the net investment income, which stood at just over $12.5M after reporting expenses of $2.9M. This strong coverage is reflected in OPP's asset coverage ratio, which was approximately 281% in H1 2025, comfortably exceeding the required 200%.

Approximately 50% of OPP's asset portfolio consists of mortgage-backed securities, with an equal split of agency and non-agency securities. This diversified portfolio strategy has contributed to the fund's stability and resilience in the current financial market situation.

The Series A preferred shares can be called from November 15 this year, while the Series B can be called from February 15, 2027. Given the current market conditions, it is extremely unlikely that either preferred share will be called. As of the reporting, the stock price of the Series B preferred shares was not publicly available in the provided information. However, the Series A shares are currently trading at $17.13 per share, while the Series B are trading at $18.37.

It's worth noting that the distribution on the common shares of the RiverNorth/DoubleLine Strategic Opportunity Fund has been cut by almost 50% since 2020. This contrasts with the consistent dividends offered by the preferred shares, providing a more reliable income stream for investors.

With a low cost of capital - the respective 4.375% for Series A and 4.75% for Series B - the RiverNorth/DoubleLine Strategic Opportunity Fund offers a very low cost of equity, making it an attractive option for income-focused investors seeking a stable return.