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As income investors we always strive to get a great yield, but unfortunately given the current environment, it's difficult to find a high yield without taking on a ton of risk. I wrote about Goodrich Petroleum (NYSE:GDP) in late April. In the article I mentioned that GDP's preferred was a high risk investment due to the negative FCF. The company would have a difficult time meeting its dividend payments going forward.

This was a preferred I advised investors to stay away from. However, I believe that investors can find some good yield that is often misunderstood or just not recognized by the market. So when I was digging I came across a small shipping company called Box Ships (NYSE:TEU).

Box Ships has a fleet of 9 containerships and is based out of Greece. The common stock pays a dividend of 11.90%. While that is a nice yield, I believe the series C preferred is a better investment.

The series C has a yield on cost of around 9.5%. This is because the preferred is now trading at nearly a 5% discount to par. Now before I start talking about it in further detail, most of you are already probably thinking why you just don't buy the common stock. Well this is because if you look at the dividend history for the common you will see a common trend. The dividend is being cut consistently. This is why I like preferreds because you get the added safety of a consistent dividend.

So let's take a look at Box Ships ability to meet its dividend payments. In 2012, the company had a FCF of $32.5 million. In 2011, the FCF was more than $21.5 million. The total payments for the preferreds each year is $1.2 million. Even though the preferreds are senior to the common, we should still include the common dividends as well. The total combined dividend between the preferred and common is $13 million annually. This assumes the common dividend isn't cut. So clearly the FCF is more than sufficient enough to meet its dividend payments.

There are a some other pluses to this preferred as well. Keep in mind that it's cumulative so preferred holders will only see a cut until the common dividend is removed completely. This preferred also qualifies for the 15%-20% tax rate and is not treated as ordinary income. This will save investors money come tax season.

One other positive with this preferred is related to a clause if the company breaches its dividend obligations. In the event of a payment default, the dividend will increase to $2.81 annually. This is an 11.8% yield on cost in this scenario.

So as you can see TEU series C has several pluses and maintains positive dividend coverage. This is not something that GDP is able to do. So why is it that TEU's preferred has a similar yield to GDP's preferred?

It's likely because TEU's preferred is a smaller issuance. The company only issued $13.4 million in preferred, while GDP's latest series D offering raised $120 million.

The float for TEU's offering is very small so it hasn't been either recognized by the market or investors are not able to purchase large quantities due to low volume. I believe this is a great investment for those just looking to grab a few bites on this preferred. If investors want to buy more they can always buy in increments over time. Investors should just understand the risks associated with preferreds with low liquidity. However, I would much rather purchase a preferred like TEU's series C even though there is low liquidity compared to GDP's series D. Box Ships generates more than sufficient enough FCF to cover its dividend payments.

Please note that your broker may have different naming conventions. Here are just some examples: TEU-C, TEU PRC, TEU-PC, etc. Also certain brokers may not allow you to purchase this security due to low liquidity. Please check with your brokers regarding this.

Source: Box Ships: A 9.5% Yield For Your Income Portfolio