Let’s face facts — even if the Federal Reserve raises rates in the short term, they aren’t going to rise to 15% overnight. That means that finding sources of reliable income is going to be on the minds of many retirement-focused investors.
While all kinds of high-yielding assets have gotten the nod from investors — from real estate investment trusts (REITs) to master limited partnerships (MLPs) — the best could be a hybrid security type.
We’re talking about preferred stocks.
Preferred stocks are kind of like a mix between bonds and equities. Like bonds, these hybrid securities feature high yields — often in the 4% to 7% range — as well as feature a par value that, after a certain maturity date, can be called by the issuing company. That provides a price floor for the preferred stock and provides protection from Fed interest rate raises. You’ll at least get that back when the preferred stock matures.
But the real benefit of preferred stock is that it is senior to common stock, meaning dividends must be paid to preferred holders before common stock holders.
For those investors who are in retirement, preferred stocks offer the best combination of yield and protection.
Accessing preferred stocks used to be a big deal. However, today it’s easier than ever. Here’s one individual preferred stock, an exchange-traded fund and a mutual fund to get you started.