As I wrote in a previous blog posting, “This Stock has been flat for 3 years – You’ll just love it!” preferred stocks can generate a very nice yield and still have a margin of safety.
Most investors don’t understand 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 preferred investments you should consider:
- iShares U.S. Preferred Stock ETF (PFF) 5.11% yield
- Ladenburg Thalmann Financial Services (LTS-PA) 9.75% yield
- Barclays Bank (BCS-PD) 7.7% yield
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.