Steve Mauzy: Time to consider preferred stocks; or for individual investors, preferred-stock funds.
For income investors considering preferred stocks, having an idea of what to consider is a rational starting point.
I have three preferred-stock funds worth considering today. All three funds yield above 6%, and all three pay dividends monthly. This is an addditional benefit for anyone dependent on investment income to meet monthly expenses.
First up, iShares U.S. Preferred Stock ETF (NYSEARCA:PFF). iShares holds over 300 preferred stocks, heavily weighted toward preferreds issued by financial, insurance, and real estate companies. This isn’t terribly unusual, or should be of any particular concern; these industries are the lead preferred-stock issuers.
The iShares fund is one of the more established preferred ETFs, existing since mid-2007. iShares provides a 6.5% on its monthly dividends (based on trailing 12 months of distributions). The downside is that the distributions are variable. Over the past 12 months, dividends have ranged between $0.15 to $0.24 per share. (There was a $0.61-per-share dividend in December, but this was an outlier.)
For investors willing to venture out on the risk curve, and thus capture a little more yield, the Global X Super Income Preferred ETF (NYSEARCA:SPFF) is worth considering. The fund invests in 45 different holdings issued by companies in the United States, Canada, and Western Europe.
Like iShares, the Global X fund has a heavy weighting of financial issues. The difference is the weighting is geographically diverse. With fewer holdings spread over a wider terrain, Global X generates a 7.1% yield (again, based on trailing 12 months of distributions).
Global X’s monthly distributions are also variable, though there hasn’t been much variability over the past 12 months. Global X’s dividends tend to vibrate between $0.08 and $0.09 a month (with a $0.14 outlier that occurred in December). Global X doesn’t have long track record – it’s been around for roughly two years – but it’s a worthwhile investment for income investors with a slightly higher risk tolerance.