Building a High Yielding Retirement Portfolio – Part 2 Preferred Stocks

In my previous posting I discussed the need include high-yielding securities in a retirement portfolio. In this article we’ll discuss Preferred Stocks.

Preferred stocks are positioned between common stocks and bonds. Most commonly preferred shares carry no voting rights but have a higher claim to earnings than common share and are usually less volatile than common. When the S&P 500 fell 37% in 2008, for example, the iShares preferred fund fell only 24%. Preferred shares are next in line to bond holders in the capital chain of any company. Investors can easily choose from preferred stock ETF’s or individual stocks. Investors should also understand that most high-yield stocks are affected by rising interest rates, similar to bonds.

Here are some examples of ETF’s you should consider:

  • iShares U.S. Preferred Stock ETF (PFF) 5.6% yield
  • PowerShares Preferred Portfolio (PGX) 6.8% yield
  • SPDR Wells Fargo Preferred Stock (PSK) 6.7% yield

Many of the high-yield preferred stocks are in the financial sector, including REIT’s.  Here are a few that I either currently own or have owned in the past:

  • Privatebancorp Capital Trust IV (PVTBP) 9.7% yield
  • Magnum Hunter Resources Corp (MHR/PC) 10.1% yield
  • SandRidge Energy (SDRXP) 8.2% yield

If you are a first time investor you should research a little more on how preferred stocks are priced before adding them to your portfolio. For example, SandRidge Energy (SDRXP) has a Face Value of $100, its original selling price when issues. Today it is selling for $103.75, a slight premium. The preferred pays an 8.50% “coupon rate”, however since the stock sells at a premium, you will only get paid the current 8.2%. In addition this preferred stock is “callable” at the option of the company. I wouldn’t worry too much about this, the fact is you will earn a nice yield on your investment.

By allocating a portion of your portfolio to some of these ultra-high-yielding investments you’ll be able to improve your cash flow while
waiting for the next Facebook or Apple investment to come along. In future posts we’ll discuss the pros and cons of these investments and some helpful tips.

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