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With the Federal Reserve ratcheting up interest rates, preferred share prices have tumbled. The lower prices offer the chance to lock in excellent yields of 10% or even more – all from secure dividends.
However, there are some crucial features of preferred shares that you need to understand first.
Let me show you how to lock in safe and high income for years to come…
Preferred shares get the name because they have preference over common shares. This feature makes the first analysis step easy. If the issuing company is paying dividends on its common shares, the preferred share dividends are 100% secure.
A preferred stock has a par value (typically, but not always, $25.00) and a coupon rate based on the par value. For example, the Invesco Mortgage Capital Preferred C (IVR.PC) shares have a 7.5% coupon rate. This rate means these preferred shares pay a dividend of $0.466 each quarter. The dividend rate is fixed and will not change.
The current yield is the dividend rate divided into the current share price. As I write this, IVR.PC trades for $19.86, giving a current yield of 9.4%. To repeat, the 7.50% coupon rate you see when researching is based on the $25.00 par value. The current yield is based on the current share price.
Preferred shares become callable at some point in time. The IVR.PC IPO was issued on August 10, 2017, and the shares become callable on…
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