3 Preferred Stock ETFs for High, Stable Dividends

Preferred stocks aren’t usually the first, second, or even third thing that comes to mind when investors consider what to include in their portfolios. If you’re looking for income and don’t already have these stocks on your radar, preferreds — and especially preferred stock ETFs – are worth a look.

Because they have characteristics of common stock (the sort of stock you generally invest in) and bonds, preferred stocks are sometimes referred to as stock-bond “hybrids.” Preferreds, like ordinary shares, signify ownership in a corporation and are usually traded on stock markets. Preferred stocks, like bonds, usually do not come with voting rights.

Preferred stocks, on the other hand, are known for their dividends. In terms of nature, preferred stock dividends are more akin to bond coupon payments in that they’re usually established at a preset amount. These payouts are also significant, often ranging from 5% to 7%.

Preferred stocks, on the other hand, have a tendency to behave more like bonds in that they move around a par value. So, although they’re a terrific source of guaranteed income, unlike ordinary stocks, they’re not likely to skyrocket when a firm expands.

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They come with their own set of dangers.

“Because preferred securities have lengthy maturities, or none at all,” explains Charles Schwab, “they tend to have substantial interest rate risk, or the possibility that prices will decline when rates increase.” Indeed, a prominent preferred stock index is down 13% so far in 2022. “As a result, preferreds should always be seen since long-term investments, as interest rate fluctuations may have a significant impact on preferred asset pricing.”

While individual preferred stocks are simple to buy, exchange-traded funds (ETFs) enable you to diversify your risk by investing in baskets of preferreds. This helps to keep your portfolio from being ruined by a single preferred-stock failure.

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