Preferred Shares Aren’t Just for the Pros

One of the more unpopular asset classes right now is a stock/bond hybrid called preferred shares. While they’re called shares, they have more in common with bonds. Preferred shares have a par value, coupon, and maturity date, just like bonds. And the nice thing about them is that common shareholders don’t get a penny in dividends or distributions until preferred shareholders are paid off.

They’re unpopular at the moment because Wall Street is worried about bankruptcies. Investors are driving down the price and driving up the yields of these preferred stocks to justify the perceived additional risk. So you can get amazing yields on preferred stocks – 6 percent and above. Much better than just half a year ago.

Most go for $25 per share, but now you can buy them at a discount. Like common shares, they’re traded on the major exchanges and their price goes up or down depending on demand. Institutions buy most of the preferred shares, but there’s nothing to prevent individuals from owning them too. They’re currently the best bargain on Wall Street. And they provide steady income.

But a word of caution… If you buy preferred shares, please stay away from the crazy financial sector. No investment is safe in that sector right now.

[Ed. Note: The economy seems dicey, but don’t worry. You can make money just by making smart decisions about where and how to invest. Find a company with good fundamentals, and you’ll be sleeping soundly for years.]

Andrew Gordon

Andrew Gordon is a former editorial contributor for Early To Rise Investor’s Edition. He has 20 years of experience working in infrastructure and environmental projects around the world. When he wasn't traveling, he taught marketing and finance courses at the state university of Maryland. Mr. Gordon has authored several books for McGraw Hill and other publishing companies on energy markets, global countertrade practices and the hot growth sectors of China and Russia. He is also a top-rated speaker at financial conferences.