**

Eagle Point Income Company (EIC), a closed-end fund specializing in preferred stock investments, has been flying under the radar, leaving many investors unaware of its potential. While the market has shown skepticism, a deeper dive reveals a compelling case for EIC as a significantly undervalued and misunderstood investment opportunity. This article explores the reasons behind this misperception and argues why now may be the opportune time for savvy investors to consider adding EIC to their portfolios.

Understanding Eagle Point Income Company (EIC) and its Preferred Stock Strategy

Eagle Point Income Company primarily invests in preferred securities, focusing on those issued by mortgage REITs (Real Estate Investment Trusts) and other financial institutions. These preferred shares often offer higher yields than traditional bonds or common stocks, making them attractive to income-seeking investors. EIC's strategy leverages its expertise in identifying undervalued opportunities within the often-complex preferred stock market. This specialized focus differentiates it from broader-market funds and presents a unique investment proposition. Understanding the intricacies of preferred stocks, including their call features and sensitivity to interest rate changes, is crucial for evaluating EIC’s performance and potential.

Key Advantages of Preferred Stocks:

• Higher Yields: Preferred stocks generally offer significantly higher dividend yields than common stocks and often exceed those of corporate bonds, particularly in a rising rate environment. This is a key draw for investors seeking income generation.
• Seniority in Bankruptcy: In the event of bankruptcy, preferred stockholders have priority over common stockholders in receiving assets, offering a degree of protection.
• Potential for Price Appreciation: While income is the primary focus, preferred stock prices can appreciate, especially if the underlying company’s performance improves or interest rates fall.

Risks Associated with Preferred Stocks (and EIC):

• Interest Rate Sensitivity: Changes in interest rates significantly impact preferred stock valuations. Rising rates generally depress prices, while falling rates can boost them.
• Call Risk: Many preferred stocks are callable, meaning the issuer can redeem them at a predetermined price. This can limit potential upside and create uncertainty for investors.
• Credit Risk: The creditworthiness of the issuer is paramount. If the issuer defaults, the preferred stock may become worthless. EIC mitigates some of this risk through diversification, but not entirely.

Why is EIC Undervalued and Misunderstood?

The market's apprehension towards EIC might stem from several factors:

• Complexity of Preferred Stocks: The intricacies of preferred stocks, including call features and sensitivity to interest rate changes, can deter many investors. This lack of understanding contributes to the market’s undervaluation.
• Market Sentiment Towards Mortgage REITs: Negative sentiment surrounding the mortgage REIT sector can spill over to EIC, even if its portfolio is diversified and well-managed. This is a case of guilt by association.
• Short-Term Volatility: Preferred stock prices can be volatile in the short term, especially during periods of economic uncertainty. This can lead to short-term investors exiting their positions, creating temporary undervaluation.
• Lack of Analyst Coverage: Compared to larger, more established funds, EIC may receive less analyst coverage, resulting in limited market awareness and inaccurate valuation.

Analyzing EIC's Performance and Portfolio

EIC's portfolio is meticulously constructed to minimize risk through diversification across issuers and sectors. A thorough analysis of its holdings reveals a focus on high-quality issuers, reducing the overall credit risk. While the fund's NAV (Net Asset Value) might fluctuate, a long-term perspective demonstrates the potential for sustained income generation and capital appreciation. Regular review of their portfolio holdings is key to understanding their investment strategy.

Key Metrics to Consider:

• Distribution Yield: EIC offers a consistently high distribution yield compared to similar investment vehicles, making it attractive to income-focused investors.
• Discount to NAV: EIC frequently trades at a discount to its NAV, presenting a compelling entry point for long-term investors.
• Portfolio Turnover: Monitoring portfolio turnover helps assess the fund's active management strategy and potential for capital gains.

EIC as a Long-Term Investment Strategy

For long-term investors seeking a relatively high-yield, diversified income stream, EIC presents a potentially attractive proposition. While short-term volatility is expected, the fund's focus on high-quality preferred stocks and its experienced management team suggest a strong potential for long-term value creation. It's important to remember that individual investor risk tolerance and investment goals should guide any investment decision.

Conclusion: A Potential Hidden Gem?

While the market might be overlooking Eagle Point Income Company (EIC), a deeper analysis suggests that its undervalued status presents an opportunity. By understanding the intricacies of preferred stocks and EIC's investment strategy, investors can potentially unlock significant value. However, it's crucial to acknowledge the risks inherent in preferred stock investments, including interest rate sensitivity and call risk. Conducting thorough due diligence and seeking professional financial advice are crucial steps before making any investment decisions. The information provided here should not be considered financial advice. Always conduct your own research and consult with a qualified financial advisor.