Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
CATHY WOOD ARK GARBAGE ARK Funds Heading for 90% STOCK CRASH! - 22nd Jan 22
Gold Is the Belle of the Ball. Will Its Dance Turn Bearish? - 22nd Jan 22
Best Neighborhoods to Buy Real Estate in San Diego - 22nd Jan 22
Stock Market January PANIC AI Tech Stocks Buying Opp - Trend Forecast 2022 - 21st Jan 21
How to Get Rich in the MetaVerse - 20th Jan 21
Should you Buy Payment Disruptor Stocks in 2022? - 20th Jan 21
2022 the Year of Smart devices, Electric Vehicles, and AI Startups - 20th Jan 21
Oil Markets More Animated by Geopolitics, Supply, and Demand - 20th Jan 21
WARNING - AI STOCK MARKET CRASH / BEAR SWITCH TRIGGERED! - 19th Jan 22
Fake It Till You Make It: Will Silver’s Motto Work on Gold? - 19th Jan 22
Crude Oil Smashing Stocks - 19th Jan 22
US Stagflation: The Global Risk of 2022 - 19th Jan 22
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22
How to Profit from 2022’s Biggest Trend Reversal - 11th Jan 22
Stock Market Sentiment Speaks: Are We Ready To Drop To 4400SPX? - 11th Jan 22
What's the Role of an Affiliate Marketer? - 11th Jan 22
Essential Things To Know Before You Set Up A Limited Liability Company - 11th Jan 22
NVIDIA THE KING OF THE METAVERSE! - 10th Jan 22
Fiscal and Monetary Cliffs Have Arrived - 10th Jan 22
The Meteoric Rise of Investing in Trading Cards - 10th Jan 22
IBM The REAL Quantum Metaverse STOCK! - 9th Jan 22
WARNING Failing NVME2 M2 SSD Drives Can Prevent Systems From Booting - Corsair MP600 - 9th Jan 22
The Fed’s inflated cake and a ‘quant’ of history - 9th Jan 22
NVME M2 SSD FAILURE WARNING Signs - Corsair MP600 1tb Drive - 9th Jan 22
Meadowhall Sheffield Christmas Lights 2021 Shopping - Before the Switch on - 9th Jan 22
How Does Insurance Work In Europe? Find Out Here - 9th Jan 22
MATTERPORT (MTTR) - DIGITIZING THE REAL WORLD - METAVERSE INVESTING 2022 - 7th Jan 22
Effect of Deflation On The Gold Price - 7th Jan 22
Stock Market 2022 Requires Different Strategies For Traders/Investors - 7th Jan 22
Old Man Winter Will Stimulate Natural Gas and Heating Oil Demand - 7th Jan 22
Is The Lazy Stock Market Bull Strategy Worth Considering? - 7th Jan 22
METAVERSE - NEW LIFE FOR SONY AGEING GAMING GIANT? - 6th Jan 2022
What Elliott Waves Show for Asia Pacific Stock and Financial Markets 2022 - 6th Jan 2022
Why You Should Register Your Company - 6th Jan 2022
4 Ways to Invest in Silver for 2022 - 6th Jan 2022
UNITY (U) - Metaverse Stock Analysis Investing for 2022 and Beyond - 5th Jan 2022
Stock Market Staving Off Risk-Off - 5th Jan 2022
Gold and Silver Still Hungover After New Year’s Eve - 5th Jan 2022
S&P 500 In an Uncharted Territory, But Is Sky the Limit? - 5th Jan 2022

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

This Little-Known Class of Stocks Will Thrive as Rates Go Down and Volatility Up

Companies / Investing 2019 Oct 01, 2019 - 05:39 PM GMT

By: Robert_Ross

Companies An entire class of high-yield stocks just got a big boost.

Fed Chairman Jerome Powell announced last Wednesday that the central bank will cut interest rates by 0.25%.

But we expected this. Investors had already priced in a 100% probability that the Fed would cut rates, according to global brokerage CME Group.

This is the second rate cut in the last three months. But it’s only the beginning.

As I’ll explain shortly, I expect the Federal Reserve to lower interest rates two more times this year.


This is great news for a special class of high-yield stocks called preferred stocks. That’s because preferred stocks surge when interest rates fall.

Stocks That Are Sort of Like Bonds

Let’s start with the basics. There are two main types of stock: common and preferred.

When you own preferred shares, you own a slice of the company. And the value of that slice—the share price—can go up or down over time. In that sense, it’s just like owning common stock.

However, preferred stocks also pay a fixed dividend. This makes them a bit like bonds. (More on bonds in a moment.)

Not all publicly traded companies issue preferred shares. It’s most common among banks and other financial firms.

Also, you don’t need to jump through any special hoops to buy preferred shares. They’re accessible through an ordinary brokerage account.

So what’s the trade-off?

Well, preferred stocks generally have less upside than common stocks. But they generally also have less downside. This can be a great thing when stock market volatility is rising.

A Good Way to Steady Your Portfolio

Income investors should own some preferred stocks for two key reasons.

First, preferred stocks tend to be much more stable than common stocks.

HSBC provides a good example of this. Take a look at the company’s preferred and common shares over the last year in the chart below.

As you can see, its preferred shares (the black line) have fluctuated far less than its common shares (the green line):



This kind of stability isn’t limited to HSBC. It’s the norm for preferred stocks. This is why they can help stabilize your overall portfolio.

US stocks have been on a roller coaster ride over the past few months, making this all the more important right now.

The second reason to own preferred stocks is their high yields…

Yields 3X Higher Than Most Stocks

I focus on safe and reliable dividend-paying stocks.

Preferred stocks fit that bill. That’s why I keep around 5% of my portfolio in preferred stocks.

The iShares Preferred and Income Securities ETF (PFF) is a good proxy for preferred stocks in general.

As you can see in the table below, PFF’s dividend yield is almost two-thirds higher than the yield on the iShares Select Dividend ETF (DVY), our proxy for high-dividend common stocks.

PFF’s yield is also over three times higher than the yield on the S&P 500.



Remember, preferred stocks pay a fixed dividend, usually every month or quarter. This makes them a bit like bonds. And the company must satisfy these payments before it pays a dividend on its common stock.

Like bonds, preferred stocks are also very sensitive to interest rates.

When interest rates rise, the value of preferred stock falls. The opposite is also true: When interest rates drop—as they have recently—the value of preferred stock goes up.

Interest Rates Will Keep Dropping

If you own preferred stock, interest rates are your friend right now.

Here’s why…

The Fed kept interest rates near 0% from 2008 to 2016. This made it much cheaper for businesses to borrow money, pushing up the prices of things like houses and stocks.

Then between 2016 and 2018, the Fed started to hike interest rates.

Eventually, the weight of higher rates—and the Fed signaling they would head even higher—became too much to bear. The combination pushed stocks down 20% from October to December last year.

The big market selloff seemed to spook the Fed into abandoning higher interest rates. I expect it to cut rates two more times before the end of the year.

Again, this is great news for preferred stocks. Let’s take a look at three of your top options here.

Three Preferred Stocks to Buy Now

One of the best ways to buy preferred stock is through an exchange traded fund, or ETF.

SPDR Wells Fargo Preferred Stock ETF (PSK) is a great way to go. The fund holds preferred stocks from banks like Citi Group, PNC Financial, and HSBC. It also pays a 5.8% dividend yield. Plus, PSK has a low expense ratio of 0.45%. So you’re not losing money to excessive management fees.

The First Trust Preferred Securities and Income ETF (FPE) is another good choice. The fund is mostly made up of real estate preferred shares from companies like Emera Inc., NiSource Inc., and Catlin Insurance Company. It also pays a 5.6% dividend yield. This ETF is very liquid, trading an average of 1.1 million shares per day.

Last, we have the VanEck Vectors Preferred Securities ex Financials ETF (PFXF). The fund mainly holds utility preferred stock like AT&T, Duke Energy, and Southern Company. It also pays a 5.2% dividend. The company also has the lowest expense ratio of the bunch at 0.41%.

You might recall that I told readers to buy preferred stock back in April, ahead of the recent rate cuts. With more cuts looming, now is the time to add these stable, high-yield stocks to your portfolio if you haven’t already.

The Sin Stock Anomaly: Collect Big, Safe Profits with These 3 Hated Stocks

My brand-new special report tells you everything about profiting from “sin stocks” (gambling, tobacco, and alcohol). These stocks are much safer and do twice as well as other stocks simply because most investors try to avoid them. Claim your free copy.

By Robert Ross

© 2019 Copyright Robert Ross. - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in