Loading…
Loading…
Preferred shares can offer enticing high-single-digit yields, but they can create a misleading sense of safety. I detail some of the biggest potential traps that retirees often fall into. I also share some of my top preferred picks of the moment.
Managed, leveraged fixed-income funds offer liquidity and instant diversification across thousands of complex institutional credit facilities. Strengthening demographic demand from an aging U.S. population delivers acyclical structural tailwinds to healthcare investments. Broad closed-end funds convert standard large- and small-cap stock movements into highly visible, managed distributions.
Preferred stock ETFs sit in an awkward corner of the income market: too rate-sensitive to feel like true fixed income, too subordinated to trade like common equity.
The Virtus InfraCap U.S. Preferred Stock ETF (NYSEARCA:PFFA) pays $0.1725 per share every month, which works out to roughly a 9.9% forward yield at a recent share price near $21.
Chasing unsustainable high yields can give investors a false sense of progress toward retiring on dividends. Popular funds like SCHD offer safety but only 3% to 3.5% yields, stretching out the timeline to retire on dividends longer than the traditional 4% rule allows. I detail some 7-10% yields that look built to last.
If you own Virtus InfraCap U.S. Preferred Stock ETF (NYSEARCA:PFFA) for the income, the question that matters is whether that fat distribution will still be there next year.
The bar for including securities that come in a fund-like wrapper is high, as they come with an inherent fee drag. Plus, it is more difficult to develop a high-conviction case on an instrument that consists of, oftentimes, hundreds of underlying securities. However, there are certain areas of the market and asset classes where ETF (and CEF) solutions make sense.
Preferred shares offer high-priority contractual distributions like debt while capturing juicy equity yields backed by strict common dividend suspension rules. Unlike standalone companies or closed-end funds, PFFA's ETF structure ensures you can exit at or near NAV at any moment. Outperforming the Index: Active capital allocations and a disciplined overlay of modest leverage have allowed PFFA to aggressively crush passive index peers.