Malcolm Berko: A primer on preferreds

Preferred stocks offer corporate ownership along with unique characteristics that include qualities of a bond and a common stock.
Published: December 23, 2012
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Preferred stocks, like bonds, are rated by both Standard & Poor's and Moody's. However, their ratings are generally below that of the same company's bond because preferred dividends, which are declared by the board of directors, do not carry the same guarantee as bond interest payments. Meanwhile, there's an interesting tidbit about preferreds about which few folks are aware. If corporations park excess cash in preferred securities, the IRS allows them to exclude 70 percent of the dividends they receive from their taxable income.

Power Shares Financial Preferred (PGF-$18.50) is an Exchange Traded Fund that owns a $1.72 billion portfolio of BBB, BB and B rated preferreds that comprise the Wells Fargo Hybrid Financial Preferred Index. Ownership of preferreds like Credit Suisse, ING Groep, Bank of America, HSBC, Met Life, PNC Financial and Wells Fargo, enables PGF to pay a monthly dividend of 9.1 cents ($1.09 annually) yielding 5.9 percent. Its cousin, PowerShares Preferred Portfolio (PGX-$14.81) owns a $1.98 billion portfolio of A, BBB, BB, B and NR, rated preferreds from the BofA Merrill Lynch Core Plus Fixed Rate Preferred Securities Index (now that's a mumble). Issues like Barclays, JP Morgan Chase, Morgan Stanley, Citigroup and Synovous, allow PGX to pay 7.7 cents a month (92.4 cents annually) yielding 6.23 percent. Either is fine. And if you girls decide to visit the Florida beaches, stop by for a cup of tea.

Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at mjberko@yahoo.com.