Investors looking for income with low risk tend to gravitate heavily toward bonds, but their efforts are often better spent in preferred stocks. These “hybrid” securities commonly pay 5% or 6% but gyrate far less than common stocks – certainly less than most shares that offer a similar amount of yield.
So, what exactly is a preferred stock?
Preferreds are simply another way companies raise capital. However, unlike common stock whose value fluctuates with the success (or lack thereof) of the company, preferred stock trades around a “par value” much like a bond, and they pay fixed dividends – often yielding far more than the common shares.…