In the ongoing hunt for yield, many investors have turned to a preferred stock ETF (exchange-traded fund).
To understand these ETFs, it's necessary to understand preferred stocks.
In short, preferred stock is a kind of hybrid between common stocks and corporate bonds. Companies issue them as an extra financing tool. Primary issuers are financial, real estate, utility, and industrial companies needing easy access to debt markets for operations.
Preferred stocks trade on the New York Stock Exchange, Nasdaq, and global markets. They're listed separately from a company's common stock and trade at a different price. Preferred stock is typically issued at $25 per share.
Unlike common stockholders, holders of preferred stocks usually don't have voting rights. And, preferred dividends are fixed. So while a common shareholder benefits from a dividend boost, preferred shareholders don't.
Still, preferred stocks have many perks:
- Holders of preferred stock have a higher claim on assets and earnings than common stock.
- Preferred shareholders typically enjoy a higher dividend payout than common shareholders.
- Preferred stocks aren't as volatile as common stocks.
A preferred stock ETF offers a diversified portfolio of preferred shares that tracks an index or a sector. Preferred stock ETFs are worth considering for investors seeking higher dividend yields, thanks to these ETFs' unique combination of bond and equity characteristics:
- Like bonds, preferred stock ETFs generally pay stable dividends with more frequent distributions than common shares.
- Like equities, preferred stock ETFs have the potential to appreciate in value, offering additional growth potential.
If you're looking for a preferred stock ETF, here are three to consider...
3 Preferred Stock ETFs to Buy
Preferred Stock ETF No. 1: The Global X SuperIncome Preferred ETF (NYSE Arca: SPFF). SPFF's goal is to mirror the investment results of the S&P Enhanced Yield North American Preferred Stock Index.
SPFF is designed to track 50 of the highest-yielding preferred securities from the United States and Canada, the two largest preferred stock markets.
With a market cap of $289.67 million, SPFF is heavy on financials. The sector's weighting is 80.29%. The remainder is spread across materials, telecom, REITs, and energy.
SPFF's last monthly dividend was paid on June 1 at a rate of $0.0825 per share. Its yield is 6.9%.
Preferred Stock ETF No. 2: The iShares S&P US Preferred Stock Index Fund (NYSE ARCA: PFF). This preferred stock ETF tracks the investment results of the S&P U.S. Preferred Stocks Index. The index measures the performance of a select group of preferred stocks listed on the NYSE and Nasdaq.
[epom key="ddec3ef33420ef7c9964a4695c349764" redirect="" sourceid="" imported="false"]
PFF has a market cap of $13.32 billion, with 302 holdings.
PFF's latest monthly distribution, paid June 1, was $0.181 a share. Its yield is 6.08%.
Preferred Stock ETF No. 3: The Market Vectors Preferred Securities ex-Financials (NYSE ARCA: PFXF). This preferred stock ETF aims to replicate the performance of the Wells Fargo Hybrid Preferred Securities ex Financials Index. The index is comprised of a basket of securities traded on U.S. exchanges that are not in the financial sector.
PFXF has a market cap of $287.61 million.
PFXF's most recent monthly distribution was paid on June 1 at a rate of $0.068 per share. Its yield is 5.59%.
Stay informed on what's going on in the markets by following us on Twitter @moneymorning.
Now Today's Top Story for Investors: Learn How to Put an Extra $125,000 in Your Pocket - for Just $20
Related Articles:
- Global X Funds: Global X SuperIncome Preferred ETF
- Morningstar: Market Vectors Preferred Securities exFinancial ETF
- iShares by Blackrock: iShares U.S. Preferred Stock ETF