Earn Dividends From Preferred Stocks

Yields are superb, but these investments are riskier and more complex than you may think.

Does a 7.3% yield whet your income-starved appetite? That's what the average preferred stock currently pays. Tempting, for sure. But don't jump into these quirky securities before you understand their ins and outs.

Preferreds pay fixed dividends. That makes them similar to bonds, which usually pay a set amount of interest. When it comes to paying dividends, preferred investors get preference over holders of common stock. A firm must ax common-stock dividends before it tampers with preferred payouts. Preferred holders also get preference over common holders in the event a company liquidates, though bondholders get first dibs on the firm's assets.

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Jennifer Schonberger
Staff Writer, Kiplinger's Personal Finance