Is the $0.065 distribution sustainable given the fund’s current asset composition and income generation?

Short answer:

Based on the brief news release alone, we cannot definitively conclude whether the $0.065‑per‑share monthly distribution is sustainable. The announcement confirms that the fund is following its long‑standing “managed distribution plan” (adopted in 2007) and will pay out all available investment income, but it does not provide the quantitative details (e.g., recent earnings, net‑asset‑value (NAV), portfolio composition, expense ratio, leverage level, or distribution‑coverage ratio) that are needed for a rigorous sustainability analysis.

Below is a structured look at the information we do have, the key data points that would be required for a solid assessment, and a set of practical considerations you can use to evaluate the sustainability of the $0.065 distribution on your own.

1. What the news tells us

Key implication: The fund’s policy is to distribute all income it generates, rather than retaining earnings for growth. This is typical of many income‑oriented closed‑end funds.

2. What we need to know to judge sustainability

Without these data points, any judgment would be speculative.

3. How to perform a quick “back‑of‑the‑envelope” check (once you have the data)

1. Calculate the annualized distribution:
   
   [
   \text{Annual Distribution} = 0.065 \times 12 = \$0.78 \text{ per share}
   ]

2. Compare to NAV (or price):

   • If NAV ≈ $10, the annualized distribution yield is roughly 7.8 % (0.78/10).
     
   • If NAV is higher (e.g., $12), the yield drops to 6.5 %.
     
   • Compare the yield to the fund’s historical yield and to peers in the same sector.

3. Check the coverage ratio:

   • Find the fund’s net investment income for the most recent quarter (e.g., $0.70 per share).
     
   • If the quarterly distribution is $0.065, the coverage ratio ≈ 0.70/0.065 ≈ 10.8 ×, indicating a large cushion.
     
   • A ratio consistently >1.2–1.3 is usually considered comfortable for a “all‑income” CEF.

4. Assess leverage impact:

   • If the fund uses 30 % leverage, the net income after interest expense must still be enough to cover the distribution.
     
   • Rising interest rates could compress net income, so watch the fund’s debt‑service cost.

5. Look at recent income volatility:

   • High‑yield bond and preferred‑stock sectors can swing sharply with credit spreads. A narrowing spread trend (lower yields) may reduce future income.

4. Practical take‑aways for an investor

5. Suggested next steps

1. Obtain the latest quarterly/annual report (Form N-CSR or N-PORT) for DNP Select Income Fund.
   
2. Locate the “Distribution‑Coverage Ratio” or compute it from net investment income vs. distribution paid.
   
3. Review the holdings breakdown (percentage in high‑yield bonds, preferred stocks, dividend equities, etc.) to gauge income stability.
   
4. Check the fund’s leverage ratio and debt‑service costs.
   
5. Compare the fund’s distribution yield to its historical range and to comparable CEFs (e.g., other income‑oriented closed‑end funds).
   
6. Monitor any commentary from Duff & Phelps in earnings calls or investor presentations for forward‑looking guidance on income expectations.

6. Disclaimer

This analysis is for informational purposes only and does not constitute investment advice, a recommendation, or a guarantee of future performance. The sustainability of any distribution depends on a variety of dynamic factors—including but not limited to market conditions, interest‑rate movements, credit risk, and fund‑specific management decisions. Investors should perform their own due diligence and, if needed, consult a qualified financial professional before making any investment decisions.