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Back in August I wrote about another approach for investing in Bank of America (NYSE:BAC) - buying various preferred shares and exchange-traded debt that the company has issued over the years.

That's about when Warren Buffett made a sizable investment in shares with a yield of 6%, plus warrants for the common stock at a strike price of $7.14. BAC shares fell below that level in October and stayed there until just recently with the shares closing at $7.29 on Friday.

All the stocks I listed offer yields much higher than the measly 0.50% provided by the common stock some yielding more and some yielding less than others based on position in the capital structure.

When I wrote my original article, yields on some of these preferred shares had soared as you can see on this chart that I published in that article. That's about when the Europen debt crisis seemed to hit all bank stocks, not just Bank of America.

Since then the common shares are down about 6%, but the preferred shares have generally gained from 5 to 10% when you include distribitions paid. And theire yields have been generally dropping as share prices rise as you can see on this chart showing yields since August.

How preferreds have performed against common

Here's a look at how these securities have performed compared to the common stock since late August when my articles were published - assuming a hypothetical $10,000 invested

BAC-PL
Bank of America, 7.25% Non-Cumulative Convertible Preferred Stock, Series L
Yield as of August 26, 2011: 8.5%
Yield as of January 27, 2012: 7.9%

These are convertible, but don't get too excited as the conversion price is around $40 - and BAC hasn't seen those levels since before the financial crisis.

BAC-PI
Bank of America, 6.625% Dep Shares Non-Cumulative Preferred Stock, Series I
Yield as of August 26: 7.5%
Yield as of January 27, 2012: 7.34%

These shares aren't convertible, which could be why they haven't performed as well as the PL series, which are convertible.

BAC-PV
BAC Capital Trust II, 7.00% Capital Securities

Yield as of August 26: 7.5%
Yield as of January 27, 2012: 7.35%

These trust preferred shares sit higher in the capital structure than the non-trust preferred varieties. One wrinkle is that distributions don't appear to qualify for the 15% distribution tax rate. On the other hand, these shares are "cumulative." If BAC misses payments for some reason, they will be paid back (if the company stays solvent, of course). With non-cumulative shares, missed payments are gone for good.

IKM
Bank of America, 5.875% Subordinated InterNotes due 12/15/2033

Yield as of August 26: 6.2%
Yield as of January 27, 2012: 6.1%

And

IKL
Bank of America, 5.50% Subordinated InterNotes due 7/15/2033

Yield as of August 26: 6.0%
Yield as of January 27, 2012: 5.8%

I lumped these together because these aren't really preferred shares, but exchange-traded debt securities - essentially bond-like instruments that trade on the stock exchange. They're higher in the capital structure, so their yields are generally lower. And they don't seem to qualify for the 15% dividend tax rate.

BAC-PE
Bank of America, Floating Rate Dep Shares Noncumulative Preferred Stock, Series E

Yield as of August 26: 6.0%
Yield as of January 27, 2012: 5.6%

I called this one "weird" when I first wrote about it. The yield is variable. You get either LIBOR plus 0.35% or 4% (on its par value of $25), whichever is higher. Since August, the yield on market price has ranged from about 5.5% to 6.5% with a spike to higher levels back in October.

Given that the Fed has announced that short-term rates will be pretty darned low until 2014, I wouldn't expect more than 4% on its par value anytime soon.

All these preferred and debt securities did better than BAC common shares did since I originally published my article. I kind of which I adopted a "long preferred/short common" strategy, but I didn't.

If you want more information on any of these issues (and others), you can consult Quantum Online (a great site on income securities) or BAC's Capital Issuances page (not a great site, but at least it does have a prospectus for each share class)

Disclosure: I am long BAC.

Source: Bank Of America Preferreds: Outperforming Common Shares, Yields Drop