7 Preferred Stocks for High Yields and Diversified Risk

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Preferred stocks are great high yield investments, and can be used by investors of any age. If you're young and looking for big returns, some preferreds can deliver. And if you're at or near retirement and looking for income and stability, other preferred stock vehicles fit the bill there, too.

Preferred stock can be thought of as hybrids of stocks and bonds. Yields on preferred stock are vastly superior to those of bonds, yet have the theoretical safety of bonds, while eschewing the risk of junk bonds paying about the same yields. They will have a substantial representation in The Liberty Portfolio.

Their ratings are usually better than junk bonds carry, and trade more like bonds, in tighter ranges, than stocks.

Preferred stocks also have a major advantage. They offer a higher degree of security should the company file for bankruptcy. They are second in the capital stack behind bondholders. In addition, should there be a dividend cut, the common stock of a company must be trimmed first before cutting that of preferred stock.

Here are seven preferred stocks worth looking at:

Click here to get Preferred Stock #1

Preferred Stock #1 - Bank of America

Bank of America Corporation (NYSE: BAC ) has shown extraordinary improvement since the end of the financial crisis. Its balance sheet has improved dramatically, and not only re-instituted its common dividend, but increased it to 2.1%. But why bother with a 2% yield when you can get 6% from preferred stocks at BAC?

BAC stock has many preferred stock issuances. The one you may want to look at is the Series I, which is a 6.375% issue. Most preferred stocks these days trade above par - meaning the $25 issue price - because there is so much demand for safer higher yielding securities. It trades at $25.81 and yields 6.17% based on that price.

This issue can be redeemed by BofA at $25 per share, at any time, so you could get stuck with a loss. But BofA seems unlikely to do this since it wants the capital to lend out.

Click here to Get Preferred Stock #2 - Goldman Sachs

Preferred Stock #2 - Goldman Sachs

Goldman Sachs Group Inc (NYSE: GS ) is the premier name in investment banking. As such, it is no surprise it has several issues of preferred stock. Those trading below 4.5% are trading below par in the $23.50 to $24 range, so those may be worth looking at (Series A, C, D) because there may be some capital gains possibilities there.

Recently, GS issued a new preferred series, which is a Series N 6.3% non-cumulative issue. That means if the preferred is suspended, it will not accumulate dividends to be paid out if it starts paying again. This trades at $25.90, just about 4% above par.

Click here to get Preferred Stock #3 - Aspen Insurance

Preferred Stock #3 - Aspen Insurance

Aspen Insurance Holdings (NYSE: AHL ) is an internationally active insurance company, that handles all forms of insurance as well as re-insurance. It boasts S&P and A.M. Best "A" ratings. It maintains well over $10 billion in assets, and over half are reserves. That's a good thing considering hurricane season!

Aspen does what all insurance companies do, which is take its reserves and place them in fixed income securities with credit quality of "AA-" on average that have durations that are fairly short-term in nature, hovering around three and a half years.

The Preferred D Series is a 5.625% issuance trading at $25.15, which gives it a current yield of 5.59%.

Click here to get Preferred Stock #4 - Colony Northstar

Preferred Stock #4 - Colony Northstar

Colony Northstar (NASDAQ: CLNS ) is a REIT that handles a diversified set of real estate investments. Many REITs issue preferred stock to help fund operations, because they already tend to draw down tons of debt to fund purchases. Presently, the REIT handles a massive $58 billion of assets, and plenty of additional liquidity to allocate.

Colony has been also investing in European distressed debt, and "light industrial" properties which are logistics chain buildings that are heavily weighted towards distribution. Colony likes cash flowing real estate properties and will buy up singles and even entire portfolios of them.

Colony has 8.875% Series C Preferred issue, trading at $25.20, and yielding 8.74%.

Click here to get Preferred Stock #5 - Ashford Hospitality

Preferred Stock #5 - Ashford Hospitality

Ashford Hospitality Trust Inc. (NYSE: AHT ) has never gotten the recognition from investors it deserves. Despite being the only hotel REIT not to suspend its preferred dividend during and after the financial crisis, and having the highest insider ownership of any hotel REIT, and perfectly acceptable financials, the market refuses to reward it as it should.

Fortunately, there are several classes of preferred stock. I think all makes fine choices. The Series F and Series G are both 7.375% cumulative issues trading at about $25.14 and $25.11, respectively. There is also the Series D, which pays 8.45% and trades at $25.78.

Click here to get Preferred Stock #6 - Ladenburg Thalman

Preferred Stock #6 - Ladenburg Thalman

Now I have two more choices for more aggressive investors. These choices carry much higher degrees of risk, so invest accordingly. Ladenburg Thalman Financial Services (NYSE: LTS ) has a Series A 8% Cumulative Preferred stock. Ladenburg is a small investment bank and brokerage. It is tiny by comparison to Goldman, with $500 million capitalization, and the common trades at only $2.46 per share.

Even though the company doesn't make much money, it still has enough cash flow to pay preferred dividends and just started paying a common dividend. I will take that 8% preferred yield over the 1% common, although there may be a trade to be had on the common for some capital gains for aggressive investors.

Click here to get Preferred Stock #7 - Chesapeake Energy

Preferred Stock #7 - Chesapeake Energy

The final preferred stock, one that has a lot of risk but potentially a lot of reward, is Chesapeake Energy Corporation (NYSE: CHK ), which has a Series D 4.5% Convertible Preferred. What does "convertible" mean? It means that CHK can, at its option, convert this preferred issuance into common stock at any time. It has a floor of about $30.27 but can be called at any time at $53.13 per share.

Well, with CHK shares trading at $3.46, that isn't going to happen for a very long time. Presently, the preferred issue currently trades at $50.75, which is about half its issue price of $100 per share. That means there is potential for a double in the preferred should CHK return to its former glory. In the meantime, the discount on the issue means the yield is 8.88%.

Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance and is the Manager of The Liberty Portfolio at www.thelibertyportfolio.com. He owns common shares of AHT. He has 22 years' experience in the stock market, and has written more than 1,600 articles on investing. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.