One of the dividend plays that moved from “exotic” to “everyday” in the past few years is preferred stock. Long thought of as a mysterious security that was often illiquid and dangerous, preferred stocks have now become a popular choice for dividend bugs.
That’s because preferred stocks offer the relative security of bonds compared to stocks, move in a tight trading range and offer dividends that are higher than both bonds and dividend stocks.
But even better than preferred stock are the very best exchange-traded funds that combine issuances of preferred stocks into a diversified basket. This provides a backstop should any of the preferred stocks blow up.
Even though such instances are highly unlikely, it’s always better to be safe than sorry. Preferred stocks only blow up when the underlying companies are severely liquidity constrained. And most companies that issue preferred stock are unlikely to be in that position.
With that in mind, here are three of the best ETFs to win big with preferred stock.