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High Income From Preferred Stocks

September 27, 2013

Anyone else notice that in recent months, bonds weren't the only thing to rise in yield? There are tons of preferred stocks yielding over 6%+ right now. I'm focusing on REIT preferreds (REIT common still looks pricey to me) and a few bank preferreds.

If you are doing the same, keep the following in mind:

1. REIT preferred distributions do not qualify for preferential dividend tax rates.

2. Many of the bank preferreds are perpetual, non-cumulative. This allows the preferred to qualify as Tier 1 Capital. Here's something I use to judge how concerned I should be about the fact that a bank preferred's dividend is non-cumulative: Did the bank make it through the financial crisis without cutting the common stock dividend to zero. If the answer is yes, and the bank made it through that horrible time period without cutting the dividend to zero, then I am comfortable with the non-cumulative nature of the preferred.


The Financial Lexicon

Author of Income Investing Insider


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