Why Income Investors Will Love These Preferred Stocks to Buy Now

If you're looking for new types of stocks to buy now to ramp up your portfolio yield, have you considered preferred stocks?

Preferred stocks ("preferreds") trade like regular stock but they are more like bonds in that they provide a higher fixed-dividend payment than their common stock counterparts and they generally have less upside potential.

They're called "preferred" because they have higher claim on the assets and earnings of the company.

Preferred stocks are an oft-overlooked option for snagging income in today's yield-challenged markets, but several preferred stocks in industries like banking, real estate and energy can bring stability to a portfolio. And preferred stocks that have been issued recently in this lower rate environment can provide better value.

What's to Love About Preferred Stocks

The fixed nature of the dividend makes preferred issues very attractive for income-oriented investors who want more moderate risk. Like bonds, preferred stock increases in value when interest rates fall, and their value falls when interest rates rise.

That's why the call price is critical to consider when buying these stocks, which are usually callable after five years.

Buying older preferred stock that trades at a significant premium to the call price can expose investors to capital loss if the issue is called. As a rule of thumb, preferred stock issued before an extended period of low rates as in today's environment is generally a much riskier investment. Most older issues will trade at premium and should be avoided by individual investors.

Recently issued shares can add diversity to a portfolio with preferred issues that trade at or below the par value and call price.

If you have a relationship with a broker that has an active syndicate department, you can buy new issues and will usually pay par value, which is a lower risk investment.  Preferred shares do not carry the price risk of common stock offerings and are usually far less volatile.

An added advantage to preferred shares is that their dividend payments often qualify for the lower tax rate for stock dividends, which can offer substantial savings over bond interest.

Here are three stocks to buy now if you want to try preferred shares.

Stocks to Buy Now: Three New Preferreds

Texas Capital Bancshares Inc. (Nasdaq: TCBI), Arbor Realty Trust Inc. (NYSE: ABR) and Tsaksos Energy Navigation Ltd. (NYSE: TNP) are among the more recent buying opportunities in today's preferred stock selections.

Texas Capital Bancshares, one of the fastest-growing banks in Texas, is focused on commercial services and mortgage warehouse lines of credit, niche markets where it's indeed gaining substantial footing. Texas Capital Bancshares issued 6 million shares of preferred stock (TCBIP) in March, pricing it at $25 a share with a 6.50% fixed yield. The shares have since slipped as interest rates have pared back, trading lately around $24.95. That means the yield will be a bit higher for new buyers. The perpetual preferred issue has no maturity date and is not callable until 2018.

Arbor Realty, a REIT that specialized in multi-family housing and commercial real estate mortgages and investments, issued 1.2 million shares of preferred stock in May (ABR-B). Those preferred shares were priced at $25 with a 7.75% fixed dividend yield, and are now trading around $24.69, offering more even more yield. New York-based Arbor Realty has been seeing improving income statements as the real estate market recovers. It invests in multifamily properties and commercial real estate, two sectors that have been strengthening in recent quarters. Arbor Realty's preferred stock is also a perpetual preferred stock with no maturity date and is not callable until May of 2018.

Finally, Tsakos Energy Navigation is a petroleum shipping company that transports both product and crude oil and operates tankers. Tsakos, highly regarded by Standard and Poor's analysts, issued 2 million shares of perpetual preferred stock (TNP-B) in May for $25 at a fixed yield of 8%. That's a $50 million offering that will require $4 million distributed annually. Like Texas Capital Bancshares and Arbor Realty's preferred shares, Tsakos Energy Navigation shares have dropped in price. They're now trading at about $24.75 and are not callable until 2018.

Many of these preferred shares are trading lower in recent weeks along with the weakness in the 10-year Treasury bond. So they're available at cheaper-than-par, provide a decent income and require little-to-no call risk because you can purchase them at a discount to the potential call price in five years.

For more info on stocks to buy for high-yield investments, check out Investing in Master Limited Partnerships 2013: Three Stocks with Yields Over 8%