10 Preferred Stock Funds for Safe, Substantial Yields

Investors often must accept a bit more risk to get more income out of their investments – often, but not always.

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Investors often must accept a bit more risk to get more income out of their investments – often, but not always. Preferred stocks are one of a handful of high-yield exceptions to that norm.

Preferred stocks are in the middle of a company’s capital structure, below debts like secured loans and bonds, but above common stocks. They’re a little like common stocks in that they represent ownership in the company, but they pay a fixed rate like a bond that typically yields more than common shares.

That’s what makes preferreds so interesting – they’re less risky than common stocks while also yielding a bit more than 5% on average, says Jay Jacobs, Director of Research for ETF provider Global X.

Preferred stocks aren’t easy to buy on their own. But over the past decade, mutual fund, exchange-traded fund and closed-end fund providers have launched numerous products – with different structures, strategies and costs – that make owning a group of these high-yield stocks easy. But investors have a few things to consider as they jump into this high-yield asset.

For one, expenses are a tricky point in this space. While most common-stock index funds are in a pricing race to the bottom, preferred-stock index funds haven't been nearly as aggressive about cutting fees. “In the passive space, where there’s no intention to beat a benchmark, we still see a pretty wide dispersion in management fees,” Jacobs says, adding that investors should “consider the fee disparities as they evaluate preferred ETFs.”

And passive index funds aren’t necessarily the only place to hunt for preferred stocks. Active funds can be a source of outperformance, though often at a higher cost. “Given that actively managed funds tend to be more expensive than passive ones, this ultimately means that active preferred funds have a high bar to clear to provide long-term value to their investors,” Jacobs says.

To help investors select a strategy that’s right for them, here’s a look at 11 preferred stock funds – most of which yield between 5% and 7%.

Data is as of Dec. 12, 2017. Click on ticker-symbol links in each slide for current share prices and more.

Michael Foster
Contributing Writer, Kiplinger.com
Michael Foster is the Lead Research Analyst for Contrarian Outlook, where he writes CEF Insider. He has written on high-income assets, dividends, closed-end funds and exchange-traded funds for a number of publications including Forbes, Bankrate and SeekingAlpha. Michael finished his PhD in 2008 and has been advising investors since 2011.