Jump into preferred stocks.
Income investors looking for an alternative to volatile dividend stocks and dive-bombing junk bonds don’t need to look very far. Preferred stocks are called that because their dividends must be paid out before regular dividends. They represent equity in a company, just like a regular stock, but typically don’t come with voting rights. They also pay a fixed payout over time, which is like a bond. But what’s really enticing is that they typically offer stability and high yields. Here are nine exchange-traded funds to buy preferred stocks.
iShares U.S. Preferred Stock ETF (ticker: PFF)
The PFF is the gold standard of preferred-share ETFs, with $14.5 billion in assets under management and 2.3 million units of daily trading volume. The portfolio is very U.S.-centric, with more than 80 percent in American stocks. It’s also heavy in financial preferreds at 42 percent, though that’s low compared to many preferred funds. And if you’re concerned about safety? PFF is down roughly 1.5 percent over the past year, versus losses of nearly 20 percent for the AdvisorShares Peritus High Yield ETF (HYLD).
Dividend yield: 5.9 percent
Expenses: 0.47 percent
PowerShares Preferred Portfolio (PGX)
The PGX at first glance is fairly similar to the PFF — slightly higher expenses, slightly lower dividend yield, heavily based in U.S. stocks. They even share similar top holdings, including preferreds from Barclays (BCS) and HSBC Holdings (HSBC). But PGX is much more tethered to preferred shares of financial companies, with some 86 percent of the fund dedicated to the space.
Dividend yield: 5.8 percent
Expenses: 0.5 percent
PowerShares Financial Preferred Portfolio (PGF)
The PGF is very similar to the PGX but takes the financial strategy at full throttle, holding nothing but the preferred stocks of financial institutions such as Wells Fargo & Co. (WFC) and PNC Financial Services Group (PNC).
Dividend Yield: 5.6 percent
Expenses: 0.63 percent
Market Vectors Preferred Securities ex-Financials ETF (PFXF)
The 2008-09 market meltdown and financial crisis naturally soured investors on financials for some time. Hence the creation of the PFXF, which is content to hold preferred stocks but would prefer that they’re not of the financial kind. Instead, PFXF is heavy in preferred stocks from real estate investment trusts, electric companies and telecoms. And even chicken makes an appearance, with a Tyson Foods (TSN) preferred hitting the top five holdings.
Dividend yield: 5.9 percent
Expenses: 0.4 percent, capped until Sept. 1
PowerShares Variable Rate Preferred Portfolio (VRP)
While most preferred-share ETFs focus on stocks with fixed rates, VRP — as the name would suggest — actually holds preferred stocks with variable rates. Because these preferreds’ rates are actually linked to benchmark interest rates, they’re more likely to hold up in price than traditional preferreds in a rising-rate environment.
Dividend yield: 5 percent
Expenses: 0.5 percent
First Trust Preferred Securities and Income ETF (FPE)
The FPE isn’t exactly a pure play on preferred stocks. In addition to preferreds, FPE also invests in corporate bonds, high-yield bonds and convertible securities. While the most expensive of the funds listed so far, it’s also the highest-yielding, and it also has held up better than PFF and other, more traditional, preferred funds over the past year.
Dividend yield: 6.2 percent
Expenses: 0.87 percent
SPDR Wells Fargo Preferred Stock ETF (PSK)
PSK invests in preferred stocks as well as “securities that are functionally equivalent to preferred stock,” such as perpetual subordinated debt. The selection is a little bit thinner here, with 139 holding compared to more than twice as many for PFF (286), and it’s also very top-heavy in financials, at 78 percent.
Dividend Yield: 5.4 percent
Expenses: 0.45 percent
Global X SuperIncome Preferred ETF (SPFF)
The Global X SuperIncome series of ETFs aren’t exactly subtle — they just hold big, round numbers of high-yielding stocks. In this case, SPFF “tracks 50 of the highest-yielding preferred securities from the U.S. and Canada.” The name isn’t misleading, either — Global X’s SPFF yields more than 7 percent.
Dividend yield: 7.2 percent
Expenses: 0.58 percent
iShares International Preferred Stock ETF (IPFF)
The IPFF is exactly what it sounds like: an international way to get your preferred holdings. However, this isn’t exactly a trip around the world, with nearly 70 percent of the fund invested in Canadian preferreds, more than 20 percent in the United Kingdom, roughly 10 percent split among Guernsey in the Channel Islands, Ireland, Singapore and “other.” Of course, international might not be the best route, as IPFF is the lowest-yielding of these funds, at under 5 percent.
Dividend yield: 4.7 percent
Expenses: 0.55 percent
More from U.S. News
12 of the Biggest Data Hacks of 2015
12 Terms Every Investor Needs to Know
12 Tips for Investors in Their 50s and 60s
9 Ways to Pile Into High Yield With Preferred Stocks originally appeared on usnews.com
