Preferred Stock ETF with 6% Yield Eyes Post-Crisis High

The largest ETF for preferred stocks, known for their above-average yields, is trying to break out to the highest level since 2008.

The iShares S&P U.S. Preferred Stock Index Fund (PFF) posted a total return of 18.2% in 2012 to outpace the 16% gain for the S&P 500, according to Morningstar.

For investors, preferred stock ETFs delivered the best of both worlds last year. They saw nice capital appreciation with less volatility, along with a healthy yield.

For example, PFF has a 12-month yield of 6%, according to manager BlackRock. It holds about $11 billion in assets.

“Preferred stock is a surprisingly good diversifier: it has low correlation to other income-generating asset classes like REITs, MLPs, corporate bonds, TIPS, and popular income ETFs,” according to Morningstar analyst Abby Woodham.

Preferred stocks are a type of hybrid security that exhibit the characteristics of equity and bond instruments. The shares are predominately issued by financial institutions, utilities and telecom companies. Preferred share dividends take precedent over common share dividends but fall below bonds in a company’s debt obligation hierarchy.

As many investors have noticed, this class of stocks provides high yields, but unlike regular stocks, the dividends are fixed, so investors can rely on a relatively stable source of income.

PFF is a component of the D2 Capital Management Multi-Asset Income Portfolio.

Source:  Tom Lydon, ETF Trends

The information contained in this article does not constitute a recommendation, solicitation, or offer by D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.

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