Get a better return with this preferred dividend ETF

In an economic environment where rising interest rates are the persistent trend, bond investors need yield to outpace the Federal Reserve. As capital markets bet on another rate hike at the next Fed meeting, exposure to other sources of income like preferred stock dividends can be beneficial.

Preferred stock exposure can provide an investor with more options than common stock, especially when it comes to liquidating assets in the event of a public company default. Without bondholders, preferred stockholders get paid first before common stockholders, giving them that level of priority.

There are also certain advantages when it comes to their income-generating capabilities.

“Preferred shares are very much like a bond: they pay a contractual dividend, have a face (or nominal) value, can be called early (often after five years), and can have a fixed maturity date,” Bankrate explained.

“Unlike bonds, preferred stocks may be able to skip their dividend payments, depending on the type (cumulative or non-cumulative) and some preferred stocks may not even have a maturity date, being perpetual,” Bankrate added. . “Sometimes, but not often, preferred stock is convertible into common stock.”

Exposure to preferred shares is available in an exchange-traded fund (ETFs) for easy access: the Global X Preferred Variable Rate ETFs (PFFV B-). The fund seeks to provide investment results which generally correspond to price and yield performance, before fees and expenses, of ICE US Floating Rate Preferred Securities Index.

PFFV invests in a broad basket of floating rate US preferred stocks, providing benchmark-like exposure to the asset class. Fixed income investors will be pleased to know that the fund has a 30-day time limit SECOND yield of 5.97% as of July 22 with a monthly distribution schedule.

Highlights of PFFV:

  • High income potential: PFFV invests in a broad basket of US floating rate preferred shares, an asset class that has historically offered the potential for high returns.
  • Low Spend Rate: PFFV’s spend rate is half the average of competitors.
  • Lower duration nature: Floating rate preferred issues may offer shorter duration profiles than fixed rate preferred issues.

For more news, insights and strategy, visit the Thematic Investing Channel.

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