Some investors have gravitated to preferred stock ETFs in their search for yield in a low-rate environment.
The asset class “could make sense for an income investor looking for a little extra yield and willing to take on the risks embedded in moving down the capital structure from debt to do so,” explains Morningstar analyst Timothy Strauts.
“Preferreds are hybrid securities that have characteristics of both stocks and bonds, and are typically issued by financial institutions, utilities, and telecom firms. It makes regular income payments and is rated by the major credit-rating agencies,” he wrote in an analyst report on iShares S&P U.S. Preferred Stock. “Preferreds have no voting rights, are senior in the capital structure to common stock, and have priority over common stock in the payment of dividends.”
iShares S&P U.S. Preferred Stock
