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.