Additionally, potential investors should note that traditional preferred securities, or DRDs, and qualified dividend income, or QDI, preferreds fall under the favorable tax rates.

However, investors need to be aware of the potential downsides. For instance, preferred stocks do not offer a high degree of capital appreciation – the investor can only rely on the dividend payouts.

Company issuers may call in the shares – if interest rates drop, the issuer may buy back shares to issue new ones at lower rates, but if rates increase, the outstanding preferred shares may offer less yields than the prevailing market rates.

Moreover, preferred stocks are heavily weighted in financial services, telecommunications and utility companies.

  • Global X SuperIncome Preferred ETF (NYSEArca: SPFF): started trading on July 16, 2012.
  • Global X Canada Preferred ETF (NYSEArca: CNPF): 3.4% 30-day SEC yield.
  • iShares S&P International Preferred Stock Index Fund (NYSEArca: IPFF): 3.25% 30-day SEC yield.
  • iShares S&P US Preferred Stock index Fund (NYSEArca: PFF): 6.25% 30-day SEC yield.
  • Market Vectors Preferred Securities ex-Financials ETF (NYSEArca: PFXF): started trading on July 16, 2012.
  • PowerShares Preferred Portfolio (NYSEArca: PGX): 6.62% 30-day SEC yield.
  • PowerShares Financial Preferred Portfolio (NYSEArca: PGF): 6.74% 30-day SEC yield.
  • SPDR Wells Fargo Preferred Stock (NYSEArca: PSK): 6.67% yield.

For past stories in this series, visit our “What is an ETF?” category.

Max Chen contributed to this article.

Story updated to correct information on preferred stocks.