3 Preferred Stock ETFs for High, Stable Dividends

While you can easily purchase individual preferred stocks, exchange-traded funds (ETFs) allow you to reduce your risk by investing in baskets of preferreds.

Dollar bills representing preferred stock dividends
(Image credit: Getty Images)

Preferred stocks typically aren’t first, second or even third to mind when investors think about what they want to include in their portfolios. But if you’re an income hunter and you don’t already have these stocks on their radar, you might want to give preferreds – and specifically, preferred stock ETFs – a look.

Preferred stocks are frequently referred to stock-bond “hybrids” because they contain elements of common stock (the type of stock you typically invest in) and bonds. For instance, like common stock, preferreds represent ownership in a company, and they typically trade on exchanges. However, like bonds, preferred stocks typically don’t include any voting rights.

The primary feature of preferred stocks, however, are their dividends. Preferred stock dividends are actually closer to bond coupon payments in nature, in that they’re typically set at a fixed amount. These dividends are high, too, often in the 5%-7% range.

But preferred stocks also tend to act more like bonds in that they trade around a par value. So while they’re a great source of fixed income, they’re not going to shoot considerably higher, like common stocks, as a company grows.

They're not without their risks, either.

"Since preferred securities have long maturities, or no maturities at all, they tend to have high interest rate risk, or the risk that prices will fall when yields rise," says Charles Schwab, and indeed, a popular index of preferred stocks is off 13% so far in 2022. "Given that, preferreds should always be considered long-term investments since fluctuating interest rates can have outsized effects on preferred security prices."

While you can easily purchase individual preferred stocks, exchange-traded funds (ETFs) allow you to reduce your risk by investing in baskets of preferreds. That helps to prevent any single preferred-stock disaster from undermining your portfolio.

With that in mind, here are three preferred stock ETFs to buy.

Data is as of May 26. SEC yield reflects the interest earned for the most recent 30-day period after deducting fund expenses. SEC yield is a standard measure for preferred-stock funds.

Kyle Woodley
Senior Investing Editor, Kiplinger.com

Kyle is senior investing editor for Kiplinger.com. As a writer and columnist, he also specializes in exchange-traded funds. He joined Kiplinger in September 2017 after spending six years at InvestorPlace.com, where he managed the editorial staff. His work has appeared in several outlets, including U.S. News & World Report and MSN Money, he has appeared as a guest on Fox Business Network and Money Radio, and he has been quoted in MarketWatch, Vice and Univision, among other outlets. He is a proud graduate of The Ohio State University, where he earned a BA in journalism.