cagkansayin/iStock via Getty Images AAM's Low Duration Preferred ETF ( NYSEARCA: PFLD ) is one I feel comfortable recommending. The benefits include monthly income, diversification to stocks and bonds, potential tax advantages, low interest rate risk as well as having higher status of dividend payments over common share dividends. With a current 6.
54% 30 day SEC yield and a reasonable 0.46% expense ratio, I rank this a buy. Preferred Definition Preferred shareholders typically receive a fixed dividend payment.
These shares are considered equity as opposed to debt as the firms issuing preferreds are not obligated to repay your initial investment. When a company is struggling to pay interest on debt and dividends, the preferred shareholder ranks higher than straight equity shareholders as regards dividend payments, but lower than creditors such as debt holders. A company may choose to issue preferred shares as opposed to new debt as preferreds do not usually have a maturity date that requires repayment.
..which may come at an unfavorable time for the company.
Issuing preferreds can also balance out the debt-to-equity ratio since preferreds are considered equity. Why Invest in Preferreds There are many advantages to investing in preferreds. One is that it provides a steady source of monthly income whereas many dividend paying common shares issue dividends on a quarterly, semi-annual or annual basis.
Another upside to preferreds is diversification above the traditional stock/bond .
