Markets

The Case for Preferred Stocks

Rostislav Sedlacek / Shutterstock
Rostislav Sedlacek / Shutterstock

In a world where finding yield is a challenge, even a looming rate hike isn't enough to get investors particularly excited about their bond portfolios. While some have turned to high yield bonds, preferred stocks have been mostly overlooked. But now may be a good time to take a closer look at preferred stocks.

Starting at the beginning

preferred stocks
  1. Income. According to Bloomberg, preferred stocks have historically experienced the highest yields in the investment grade universe, which makes them an attractive alternative or complement to corporate, municipal, and high yield debt securities.
  2. Diversification. Preferred stocks have lower historical correlations to traditional stocks and bonds, which means they tend to move in different directions when market conditions change.
  3. Lower volatility. Because preferred stocks have a fixed dividend and may not fluctuate the way common stocks do when the market changes, they can potentially reduce the overall volatility of an equity or high yield portfolio. Keep in mind, however, that preferred stocks are more volatile than traditional fixed income and can carry more risk when financial sectors are under pressure.

Is now the time for preferred stocks?

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.

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