Nail Down a 7%+ Income Stream for Life
October 9, 2017
This Income Stream Yields Up to 13.8%
Struggling with low interest rates?
You’re not alone. Rock-bottom yields have hammered millions of Americans.
Yet, if you do nothing, you’ll never retire. Making ends meet with part-time jobs and coupon clipping is certainly not the way many people pictured spending their “golden years.”
Fortunately, there’s an answer. This quiet area of the market still offers safe yields, ranging from seven percent to 15%. And, in many cases, retirees can lock in this income stream for life.
I’m talking about preferred stocks.
Most people have never heard of this little niche. Media-types tend to focus on “sexier” stories, like tech companies or penny stocks.
Because Joe Six-Pack won’t buy them, yields haven’t plunged with other fixed-income investments. Wall Street, though, prizes preferred shares for their generous income. And, for the past few years, I’ve been shouting from the rooftops about the benefits of these issues to just about anyone who will listen.
Preferreds offer lifetime income, for starters.
Bonds always come with a maturity date. At some point, your income stream will dry up.
Preferred stocks, in contrast, usually have no end date. If you want your money back, you can always sell your units to another investor. But, because issuers structure these as perpetual securities, owners can sit back and collect endless income.
Investors also like the extra level of security. Preferreds stand near the front of the line to get paid. So, in the event of a bankruptcy, these investors will get all of their money back before common shareholders see one red cent.
Better still, most issues come with a cumulative clause. In English, this means companies must make up for any missed distributions to preferred owners before dividends can continue to regular shareholders.
These two measures–speaking for myself, anyway–helps me rest easy. Common shares come with few protections, so prices often jump around like children in a bouncy castle. But, with their extra safety features, preferred shares tend to be much more steady.
Finally, these make for tidy income streams. Preferreds come with big, fixed distributions. Many analysts compare them to bonds, though preferred investors often collect much higher yields.
Payouts, of course, change with each issue. The bluest of blue chips usually sport yields in the mid-single digits. But, for those willing to do some extra digging, you can often find more lucrative payments.
| Issue |
Yield |
| CoreSite Realty Corporation Pfd Ser A (NYSE:COR-A) |
7.1% |
| Citigroup Inc. Pfd Series AA (NYSE:C-P) |
7.4% |
| Colony NorthStar, Inc. 8.75% Series E Cumulative (NYSE:CLNS-E) |
8.1% |
| Chesapeake Energy 5.75% Cumulative Pdf (OTCMKTS:CHKDP) |
9.6% |
| Digital Realty Trust, Inc. (NYSE:DLR-H) |
13.8% |
(Source: Google Finance)
You can’t call preferreds some kind of wonder investment.
Half-rate firms go under from time to time. Issuers often bury a lot of important details in the fine print, which can trip up rookie investors.
Of course, we can reduce our risk by sticking to top names and diversifying our holdings. Digging into a prospectus really pays off here. You can sidestep a lot of the common pitfalls of preferred investing by understanding all of the terms and conditions.
The Bottom Line on Preferred Stocks
Retirees don’t have to accept low interest rates. Preferred stocks offer a perfect combination of safety and income. And with yields topping 15%, investors should give this asset class a second look.
