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A few weeks ago I wrote an article suggesting it may be a good idea to lower one's exposure to the market by selling most of one's regular portfolio and investing in preferred shares to avoid losses that come with the summer doldrums. The strategy is to keep dividends coming with little concern about losing capital. One area of interest not covered in that article was the issue of taxes. If one's investments are in a tax-protected account, there is little concern about the tax ramifications of the stock. However, if one's investments are in a regular account, then the tax ramifications can alter the returns one receives from the account.

Most investors are probably like me-- where some investments are in tax-protected accounts and others are in a regular account. If this is true for you, you might be interested in the following tables. There are 2 tables of preferred stocks; one table covers issues that are taxed at one's regular income tax rate. These are the stocks to put in one's tax-protected account. (E.G. IRAs and 409k's). The other table covers preferred stocks that are taxed at the 15% rate for those who qualify because their annual income is below the $400,000 ($450,000 if married) when regular taxes kick in. For me and probably most investors who are retired, the 15% tax rate works because we are not in the higher income bracket where regular rates are levied.

Table 1: Preferred stocks taxed at regular rates

Symbol

Cusip

Name

Dividend % at Current Price

Dividend Amount

Current Stock Quote (6/19/13)

PSA_W 74460

W875

Public Storage (NYSE:PSA) 5.2% Cum. Pref.

5.4%

$1.30

$23.70

DDR-K

23317H805

DDR Corp. (NYSE:DDR) 6.25% Cum. Pref.

6.5%

$1.56

$24.06

CYS-B

12673A306

CYS Inv. (NYSE:CYS) 7.5% Cum. Pref.

7.7%

$1.87

$24.20

LHO-I

517942801

La Salle Prop. (NYSE:LHO) 6.375% Cum. Pref.

6.5%

$1.59

24.20

PSB-V

69360J644

PS Business Pks (NYSE:PSB) 5.7% Cum. Pref.

6%

1.42

23.40

Table 2: Preferred stocks taxed at 15% rate if one's income qualifies

Symbol

Cusip

Name

Dividend % at Current Price

Dividend Amount

Current Stock Quote (6/19/13)

GFNCP

?

General Finance Corp. (NASDAQ:GFN) 9% Cum. Red. Pref.

9%

$9.00

$102.5

WFC-P

949746655

Wells Fargo & Co. (NYSE:WFC) 5.25% Non-cum. Pref.

5.4%

$1.31

$24.09

IPL-D

461070856

Interstate P & L. 5.1% Cum. Pref.

5.2%

$1.27

$24.35

PRE-F

G68603128

PartnerRe Ltd. (NYSE:PRE) 5.875% Non-Cum. Red. Pref.

6%

$1.47

$24.10

AFSIP

032359408

AmTrust Financial Services (NASDAQ:AFSI) 6.75% Non-Cum. Pref.

6.75%

$1.68

$24.80

Let me offer a few words of caution. Some of these preferred stocks are not rated. So let me encourage you to do your own due diligence before purchasing any of the stocks listed in these tables. Much of the material for this article came from quantomonline.com, an excellent resource for searching out information on preferred stocks.

Conclusion:

If one is investing in preferred stocks for income purposes, one should also consider the tax consequences of the dividends. Put stocks that offer the 15% limit on dividends into one's regular non-tax-protected account. Preferred stocks without this feature should be placed in your tax-protected accounts. This is just another consideration to help investors enhance one's total return on investments in dividend stocks.

Source: Choosing The Right Account For Your Preferred Dividends

Additional disclosure: I have small positions in all of the preferred stocks mentioned in this article.