Preferred Stocks: An Overlooked Alternative
by John Deysher
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 common stocks. One solution: preferred stocks.
In this article
- How They Work
- The Preferred Line-Up
- Evaluating Preferreds
- Preferred Closed-End Funds
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How They Work
Preferred stocks (“preferreds”) have been around for over a century. They represent a slice of a company’s capital structure that is senior to the common shares, but subordinate to the debt (both secured and unsecured).
As with common stock, dividends aren’t guaranteed and must be declared by the board of directors, usually on a quarterly basis. The dividend is usually a specific dollar amount per share or a percentage of par/stated value. (Par/stated values normally range between $25 and $50 per share.)
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