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Preferred Stocks: An Overlooked Alternative

by John Deysher

Preferred Stocks: An Overlooked Alternative Splash image

Anxious investors looking to preserve wealth and pick up yield have increasingly focused on fixed income. But it’s been a tough few years for yield-oriented investors—interest rates are low and the world is awash in liquidity.

As a total return–oriented portfolio manager, I’m constantly on the lookout for income vehicles that can augment our holdings in low-yielding commo

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John Deysher is president and portfolio manager of the Pinnacle Value Fund, a diversified, SEC-registered mutual fund specializing in the securities of small and micro-cap firms. He is a CFA charterholder and has managed equity portfolios for over 25 years. He lives and works in New York City and may be reached at deysher@pinnaclevaluefund.com.


Discussion

Mike from California posted over 3 years ago:

Great article! Helped me as a novice to clearly understand the world of preferreds.


Antal from Florida posted over 3 years ago:

I'm new to this,but that was pretty clear and nice.


Robert from Washington posted over 2 years ago:

Good article. Would like to see a screenable list of preferreds.


Gary from Pennsylvania posted over 2 years ago:

I WOULD LIKE TO SEE A COMPLETE LIST OF PREFERRED STOCKS WITH THEIR SYMBOLS AND YIELDS


Walter from Pennsylvania posted over 2 years ago:

Hancock mutual fund has a number of preferred mutual funds all of which are currently paying around 8% in dividends. I currently have substantial holdings of preferred stocks this way, along with significant capital gains. It's been a no brainer for me along with a great source of monthly income without having to decide which preferred stocks are best at this time.


Larry from California posted over 2 years ago:

This article unfortunately overlooked an entire category of preferrreds, which is floating rate preferreds. The "dividend" is reset quarterly at a contractual spread over LIBOR (or some other index), thus interest rate risk discussed in the article is avoided. An additional bonus is that most have a "floor" which limits the downside risk of low interest rates, such as now.
As always, Quantum on-line is the source for finding this subset of investments. Read Quantum's article on preferred stock symbols before getting started.

Note: The effective yield on such floaters will be lower than than for fixed rate preferreds, the difference being the cost of interest rate protection.


Sanford from Ohio posted over 2 years ago:

Have several preferreds and their price has held fairly steady versus the topsy turvy of recent market events. They do pay a healthy dividend and have enjoyed that income. I do have a floating rate preferred from Goldman Sachs and its rate which stated on previous comment from Larry based on Libor; it is a little lower then the others (GMAC and NEXTRA ENERGY) but, still has a div. of over 5%. Personally for it not having voting rights; I don't think the amount of shares that most individual investors have make a difference anyway even with voting rights.


Robert from Wisconsin posted over 2 years ago:

I have held preferred's for a number of years and they have held up well, continuing to pay their dividends during the financial collapse of 2008. If individual preferred's create too much risk, what's wrong with buying the ETF "PFF" and spreading the risk around? I would like to hear comments about this investment vehicle.


Robert from Illinois posted over 2 years ago:

FYI "buyer beware" on preferreds.I built the dividend income portion of my retirement portfolio on (mostly trust type) preferreds.

Most of these were issued by banks and REITs. . . Of those that remain, I have been advised by my brokerage that pending changes to bank capital requirements under Dodd-Frank will allow banks the right to redeem them anytime at par regardless of call date.

I don't know the status of other types of preferreds: non-trust bank preferreds, non-bank preferrds, et.al. Congress can and will do almost anything it wants to without grandfathering existing contractual agreements.


Donald from Michigan posted over 2 years ago:

Are there any lists of preferred stocks and their ratings eaisily available ?


Maryanne from South Carolina posted over 2 years ago:

It would be helpful if you provided a list of preferred stocks and the yields of each one. Also, ranking them according to performance and quality would be helpful.


Wayne from Oregon posted about 1 year ago:

Good articel. We retired folks need all the help we can get!
Thanks


Ed from New York posted about 1 year ago:

Good article. Found the info from Walter (PA) interesting. Fund prefereds seems a good way to go.


George from Colorado posted about 1 year ago:

Good Information, I have used prefereds
in my IRA account.
George


Ron from Texas posted about 1 year ago:

I have included Prefereds in my portfolio for years. I have lost some money on REIT's but then regain some when the company returns to profit and pays back dividends. (recently $24,300.) I do worry about the upcoming tax increase.


James from Illinois posted about 1 year ago:

I hold issues of Prologis preferred in my IRA, Prologis is a REIT, well managed and they seem to have no interest in calling them. 6.75% at $25 per share works for me.


Richard Jochem from Wisconsin posted about 1 year ago:

Are preferred yields always so much higher than general bond rates?
Why would companies pay much higher rates to preferred stock holders, instead of floating much lower rate bonds?


Everett B. Guthrie from California posted 8 months ago:

It is critical you let one know how the 6.2 conversion ratio is calculate or were we find this critical value.

Thanks









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