Nevertheless, Woodham warns that preferred stocks come with specific risks, such as their heavy exposure to financials, regulation changes and rising interest rates.
Moreover the tax treatment on the securities vary. Looking at PFF, Woodham notes that the “dividends preserve the tax treatment of the underlying securities’ dividends, which has resulted in its investors usually paying qualified rates on about 50% of dividends, ordinary income on the other half, and capital gains on sale of PFF.”
Other preferred ETFs include:
- PowerShares Preferred Portfolio (NYSEArca: PGX): 6.38% 30-day SEC yield; 0.5% expense ratio
- PowerShares Financial Preferred Portfolio (NYSEArca: PGF): 6.43% 30-day SEC yield; 0.66% expense ratio
- SPDR Wells Fargo Preferred Stock ETF (NYSEArca: PSK): 5.23% 30-day SEC yield; 0.45% expense ratio
- Market Vectors Preferred Securities ex Financials ETF (NYSEArca: PFXF): 6.14% 30-day SEC yield; 0.40% expense ratio
- iShares International Preferred Stock ETF (NYSEArca: IPFF): 2.93% 30-day SEC yield; 0.55% expense ratio
- First Trust Preferred Securities and Income Fund (NYSEArca: FPE): launched on February 11, 2013; 0.85% expense ratio
- Global X SuperIncome Preferred ETF (NYSEArca: SPFF): 6.91% 30-day SEC yield; 0.58% expense ratio
- Global X Canada Preferred ETF (NYSEArca: CNPF): 3.38% 30-day SEC yield; 0.58% expense ratio
For more information on preferred funds, visit our preferred stock category.
Max Chen contributed to this article.