Income-minded investors who are looking for ways to enhance their yield generation in a lower-for-longer rate environment can consider preferreds-related exchange traded funds for more attractive opportunities.
The Invesco Preferred ETF (PGX) “is a safe fund that largely invests in preferred securities that are highly rated by Moody’s, S&P, and Fitch,” Michael A. Gayed writes for SeekingAlpha.
“The fund’s low portfolio turnover and expense ratios of 18% and 0.52%, respectively, help it keep its dividend payouts at a steady level,” he added.
The Invesco Preferred ETF is one of the oldest ETFs dedicated to this asset category. PGX is based on The ICE BofAML Core Plus Fixed Rate Preferred Securities Index. The Fund will normally invest at least 80% of its total assets in fixed rate US dollar-denominated preferred securities that comprise the Index. The Index tracks the performance of fixed rate US dollar-denominated preferred securities issued in the US domestic market. (Securities must be rated at least B3, based on an average of three leading ratings agencies: Moody’s, S&P, and Fitch) and must have an investment-grade country risk profile (based on an average of Moody’s, S&P, and Fitch foreign currency long-term sovereign debt ratings).
Along with a consistent dividend payout, preferred stocks are prioritized over common stocks in the case that a company files for bankruptcy/liquidation. This gives additional layer of safety to PGX’s portfolio.
Gayed argued that investing in PGX is a better way to gain attractive yields than investing in government bonds, which offer much lower yields for the amount of potential risk investors face.
PGX consistently dishes out dividends and currently shows a 12-month dividend yield of 4.92%. The yield may have dipped for the last 3 years because fixed-income investors are migrating away from bonds and into preferreds and ETFs that hold quality preferred securities.
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