For an investor who seeks income streams, there are a variety of avenues when it comes to exchange traded funds (ETFs). One such way is through preferred shares, or better yet, preferred share ETFs.

Why would preferred shares being appealing?

• Right now, several preferred share ETFs are yielding around 8% or more.
• Preferred shares have guaranteed priority over common shares when it comes to dividend payments and a higher claim on the assets of a company in the event of bankruptcy, says Shefali Anand for The Wall Street Journal.
• They provide income and serve to lower portfolio risk, making them especially appealing in turbulent times.

Preferred stock is basically senior equity. In exchange for a limited claim on the company’s assets and future growth, preferred shares are entitled to a dividend preference and fixed rate of dividends. Before any dividends can be paid on the common shares, all dividends owed to the preferred stock classes must be satisfied. Owners of preferred shares also give up their voting rights.

Preferred shares lost a chunk of value since late last year, sending yields up to 20% and 30% in February and March. Now that investors are feeling more optimistic, the yields have come back down.

• iShares S&P U.S. Preferred Stock Index (PFF): up 27.7% year-to-date; 8.83% yield



• PowerShares Preferred (PGX): up 10.3% year-to-date; 9.79% yield

For more stories about preferred share ETFs, visit our preferred ETF category.

Tags: ETF 101, PFF, PGX, Preferred Stock, Trend Following