How To Invest In Preferred Stocks?

One way to invest in preferred stocks is via ETFs. Three ETFs that invests in these types of stocks are listed below with their current distribution yields.

Preferred stocks are type of security that are both stocks and bonds. They get higher priority than common stocks when a company is liquidated and its assets sold and distributed to creditors.

Here is a definition from Wikipedia:

Preferred stock (also called preferred sharespreference shares or simply preferreds) is an equity security which may have any combination of features not possessed by common stock including properties of both an equity and a debt instruments, and is generally considered a hybrid instrument. Preferreds are senior (i.e. higher ranking) to common stock, but subordinate to bonds in terms of claim (or rights to their share of the assets of the company).[1]

Three ETFs to invest in preferred stocks:

1.Company: PowerShares Financial Preferred Portfolio (PGF)
Current Distribution Yield: 6.25%

2.Company: PowerShares Preferred Portfolio (PGX)
Current Distribution Yield: 6.39%

3.Company: iShares S&P U.S. Preferred Stock Index Fund (PFF)
Current Distribution Yield: 5.97%

Note: Distribution yields noted are as of Mar 18, 2013

These ETFs have higher yields than common stock ETFs. However there is one disadvantage with the preferred stocks and these funds. The dividends paid by the preferred stocks may not always be qualified dividends. Hence as ordinary dividends they will be subject to higher taxes. So before investing in these ETFs investors should carefully analyze them.

Disclosure: No Positions

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