economy
This income-generating asset offers yield exceeding 6% at a tax-advantaged rate
Investors who can stomach some rate volatility may be poised to pick up solid yield.
TL;DR
- Preferred securities offer attractive yields, often above 6%, with tax-advantaged income potential.
- They combine characteristics of bonds and stocks, trading on exchanges but providing regular income.
- Their long or perpetual maturity makes them sensitive to interest rate changes, affecting their prices.
- Income from preferreds may be treated as qualified dividends, taxed at lower rates than bond interest.
- Investors should treat preferreds as a complementary asset within a diversified portfolio, not a core holding.
- Managing concentration risk is crucial, as financial institutions and utilities are frequent issuers.
- ETFs like VanEck Preferred Securities ex Financials ETF (PFXF) and iShares Preferred and Income Securities ETF (PFF) offer diversified exposure.