Many dividend seekers, worried about the business climate, are shifting toward preferred stock. These securities combine some of the traits of common stock and corporate bonds. Riskwise, they're somewhere in between.
The S&P U.S. Preferred Stock index returned 123.5% through last week since the March 9 low, noted Standard & Poor's analyst Howard Silverblatt. He adds that it has risen 21.9% so far this year.
What's more, investments in the index grew 48% year to date, or 19% from March 9.
"I suspect that at least some of that new interest is from common dividend investors" seeking alternative income investments, he concluded.
Preferred stocks pay dividends at a specified rate. Those payouts have priority over common stocks, which becomes an issue when profits plunge. That's why they're called "preferred."
Along with that lower risk, preferred stocks often have less upside potential than common shares.
And preferred shares usually don't include voting rights.
The S&P Preferred Stock index trades as an exchange traded fund. The iShares S&P U.S.Preferred Stock Index Fund (PFF) is up 129% from its March 6 low, and up 10% so far this year.
The ETF yields 8.35% based on a 30-day yield formulated by the Securities & Exchange Commission to make for a more-fair comparison of bond funds, according to the iShares Web site.
The index's holdings include preferred shares of major companies such as Bank of America(BAC), CIT Group (CIT), Public Storage (PSA) and Royal Bank of Scotland (RBS).
The index didn't provide much safety in the bear market. Shares of the ETF plunged 70% from a February 2008 high to the March low.
