Preferred stocks are a class of capital stock that pays dividends at a specified rate and has a preference over common stock in the payment of dividends and the liquidation of assets.
The S&P U.S. Preferred Stock Index is designed to serve the investment community’s need for an investable benchmark representing the U.S. preferred stock market. The Index has currently returned a total return of 0.14% month-to-date and 13.07% year-to-date.
A 13% return in the current low rate environment is fantastic but if you delve a little deeper you can do even better. S&P Dow Jones Indices has developed sub-indices that break-out the preferred parent index into coupon type and rating sub-indices.
Of the coupon types, the S&P U.S. Floating Rate Preferred Stock Index is outperforming the parent index with a 15.18% year-to-date. The reason floaters have not pushed the parents return up higher is that floaters only constitute 4% of the overall index.
Rating sub-indices are equally impressive as the S&P U.S. High Yield Preferred Stock Index has returned 0.23% for the month, while the S&P U.S. Investment Grade Preferred Stock Index year-to-date has returned 15.5%. Depending on your risk tolerance, both rating segments have provided consistent returns though the high yield sub-index has performed better over 3 and 5 year time horizons.
This article was written by Kevin Horan, director, fixed income indices, S&P Dow Jones Indices.
© S&P Dow Jones Indices LLC 2013. Indexology® is a trademark of S&P Dow Jones Indices LLC (SPDJI). S&P® is a trademark of Standard & Poor’s Financial Services LLC and Dow Jones® is a trademark of Dow Jones Trademark Holdings LLC, and those marks have been licensed to SPDJI. This material is reproduced with the prior written consent of SPDJI. For more information on SPDJI, visit http://www.spdji.com