This asset can provide investors hefty yields at a favorable tax rate. Here’s what you should know
Written by Emily J. Thompson, Senior Investment Analyst
Source: CNBC
Preferred Stocks Overview:
- Hybrid assets combining bond and equity attributes, issued by banks and utilities.
- Trade on exchanges like stocks, offering steady quarterly income with yields over 6%.
- Tax-advantaged income with coupons taxed at 0%, 15%, or 20% compared to corporate bonds.
- Unique risk profile with long maturity dates, call options, and lower priority in case of issuer insolvency.
- Consideration of credit ratings crucial due to risks associated with preferred stocks.
Tapping into the Market:
- Individual preferred stock selection requires significant research and monitoring.
- Consider ETFs like First Trust Preferred Securities and Income ETF (FPE) or iShares Preferred and Income Securities ETF (PFF).
- FPE offers a 5.82% yield, 5.8% total return in 2024, and holds issues from Wells Fargo and Barclays.
- PFF has a 6.33% yield, over 4% total return YTD, with issuers like Wells Fargo, Citigroup, Albemarle, and NextEra Energy.
- Emphasize not only yields but also expense ratios when choosing an ETF for preferred stocks.
Analyst Views on FPE
Wall Street analysts forecast FPE stock price to rise over the next 12 months. According to Wall Street analysts, the average 1-year price target for FPE is USD with a low forecast of USD and a high forecast of USD. However, analyst price targets are subjective and often lag stock prices, so investors should focus on the objective reasons behind analyst rating changes, which better reflect the company's fundamentals.
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About the author
Emily J. Thompson
Emily J. Thompson, a Chartered Financial Analyst (CFA) with 12 years in investment research, graduated with honors from the Wharton School. Specializing in industrial and technology stocks, she provides in-depth analysis for Intellectia’s earnings and market brief reports.
