Preferred stocks are a type of hybrid security that exhibit the characteristics of equity and bond instruments. The shares are predominately issued by financial institutions, utilities and telecom companies. Preferred share dividends take precedent over common share dividends but fall below bonds in a company’s debt obligation hierarchy. [Preferred Stock ETFs Beating the Market]

As many investors have noticed, this class of stocks provides high yields, but unlike regular stocks, the dividends are fixed, so investors can rely on a relatively stable source of income.

In the current market environment, it could be tough for preferred stocks and ETFs to continue generating attractive returns, writes Dan Caplinger for the Motley Fool. Specifically, if companies outperform, investors would be better of in common stock, and if the Fed does decide to raise interest rates sooner than expected, preferreds would take a hit from the higher rates.

Some other preferred stock ETFs include:

  • PowerShares Preferred Portfolio (NYSEArca: PGX): 6.40% 30-day SEC yield; up 13.2% over the past year
  • PowerShares Financial Preferred Portfolio (NYSEArca: PGF): 6.46% 30-day SEC yield; 17.9% over the past year
  • SPDR Wells Fargo Preferred Stock ETF (NYSEArca: PSK): 5.37% 30-day SEC yield; 11.7% over the past year

For more information on preferred funds, visit our preferred stocks category.

Max Chen contributed to this article.

Full disclosure: Tom Lydon’s clients own PGF.