preferred shares

[ether]

Been looking into bank and utility preferred shares:

Pros:
-due to interest rate hikes prices have dropped a lot and now you can lock in 6.8% perpetual dividends and if rates drop you get price appreciation
-you get better tax treatment since it capital gains and not interest income (pretty huge if you make less than 42k single or 83k married in income since it will be untaxed)
-solid price stability unless long term interest rates change

Cons:
-dividends don't grow with inflation
-limited upside compared to equities and have historically underperformed equities by a large margin
-over exposure to banks and utilities

A good ETF i'm looking at is PFFD which seems to have the lowest expense ratio at .24% for this asset class
https://www.globalxetfs.com/funds/pffd/

[jacob]

I think a better way to think about them is "junior perpetuity bonds".

[Salathor]

Another consideration might be that income can only go down. The companies never have to pay MORE on a preferred, but they can eliminate the payout if they cut regular dividends too. It might still be worth some portion of your portfolio--those yields ARE tempting!--but I don't think they're an obvious heavy allocation or anything like that.

[Chris]

Be careful with bank preferreds... those tend not to be cumulative, which is one of the beneficial features of preferred over common shares.

And in the "con" column for preferreds, if you're buying them individually, is the float can be very low, making them harder to trade.

[ether]

Be careful with bank preferreds... those tend not to be cumulative, which is one of the beneficial features of preferred over common shares.

Thanks I didn't comprehend the implication of cumulative versus non-cumulative and didn't realize that prefrered shares can be suspended and that happened to first republic before they imploded