ETF investors using funds in safe haven Treasurys have to be wondering where else they can get higher yields. One way is to supersize their income with funds like the Global X SuperIncome Preferred ETF (SPFF), which focuses on preferred dividends.
SPFF seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the S&P Enhanced Yield North American Preferred Stock Index (“underlying index”). The fund will invest at least 80% of its total assets in the securities of the underlying index and in American Depositary Receipts (“ADRs”) and Global Depositary Receipts (“GDRs”) based on the securities in the underlying index.
The underlying index tracks the performance of the highest-yielding preferred securities in the United States and Canada. SPFF’s expense ratio comes in at 0.58% and as of December 9, the fund has a 30-day SEC yield of 5.66%, a 12-month trailing yield of 5.93%, and a distribution yield of 5.69%.
SPFF gives investors:
- High Income Potential: SPFF invests in 50 of the highest yielding preferreds in the U.S. and Canada, potentially increasing a portfolio’s yield.
- Monthly Distributions: The fund makes distributions on a monthly basis and has made distributions each month for over 8 years.
- Preferential Tax Treatment: Preferred securities may also provide an income advantage. Income from preferred stocks may be treated as qualified dividends (QDI), rather than as regular interest income.
“If a company is unable to pay all dividends, claims to preferred dividends take precedence over claims to dividends that are paid on common shares. The main benefit of preferred stock is that it typically pays much higher dividend rates than common stock of the same company,” the article added.
A History of Higher Dividends
In the current low-yield environment, it’s easy to see why preferred stock dividends are the prime choice over regular dividends. As opposed to seeking individual securities with preferred dividends, SPFF provides these advantages in the convenience of an ETF wrapper.
“Investors often choose preferred stocks for their regular dividend payments,” a Forbes Advisor article explained. “Since 1900, preferred stocks have seen average annual returns of over 7%, most of which are from dividend payments. However, it’s important to note that, even though preferred shareholders are paid dividends before common shareholders, dividends aren’t necessarily guaranteed.”
“This is in contrast to bond interest payments,” the article continued. “If a company is not willing or able to pay a dividend for a preferred stock in a given quarter, though, you may be eligible for back payment. That is determined by whether your preferred shares offer cumulative or noncumulative dividends.”
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