Your Money: The Preferred investment alternative
By Juergen Selk
By Juergen Selk
The preferred investment alternative
Want a higher yield, liquidity and good name recognition from your fixed-income portfolio, but without sacrificing credit quality? Then preferred securities may be among your investments of choice. Preferred issues are particularly appropriate for those in low to moderate income tax brackets who are seeking a higher current income, like many retirees. They also make a lot of sense in tax-deferred or tax-advantaged accounts.
Preferred securities do not share the same voting privileges as common stocks in the payment of dividends and in the distribution of assets in the event of a companys liquidation (most are subordinate to bonds). And most preferred issues are cumulative, meaning that if a dividend is skipped, the company must meet this obligation before dividends can be paid on the common stock.
Attractive yields relative to other fixed-income securities and common stock equivalents
Fixed quarterly or monthly dividend payments
Solid credit quality–most issues are rated investment grade and many are of well-known companies
Low minimum investmentpar values of $25
Liquidity and convenient tracking in the secondary marketmost issues are listed on major stock exchanges.
Preferred securities can be called prior to maturity, which may reduce yield if purchased at a premium. Preferred securities may also be subject to other call features or corporate restrictions that may have an effect similar to a call. However, many issues offer call protection for five to 10 years. Prices may fluctuate, reflecting market interest rates and the issues credit status.
Juergen Selk is a financial consultant at Salomon Smith Barney in Rockford. Salomon Smith Barney does not offer tax or legal advice. If you have an investment or finance-related question, send it to The Rock River Times or to Juergen.Selk@rssmb.com!