To hedge against uncertainties in capital appreciation, consider preferred stocks. Preferred stocks don’t offer the same profit potential as common stock. However, they are more stable investment vehicles because they guarantee a regular dividend that is typically tied to company cash and earnings rather than future cash flow considerations. This type of stock guarantees dividends, which common stock does not.
Considering the low interest rate environment in today’s market, the following companies’ preferred stocks have shown solid performance by paying out consistent dividends alongside positive price movements. It seems unlikely Bernanke will raise rates in the first half of 2011, given the precarious nature of the recovery, so we believe risk of erosion in the following names is limited. However, we advise you to do your own due diligence.
Bank of America Series I Preferred (BAC-I) has consistently made all dividend payments since inception. The current yield is 7%. The 52-week range is $19.43 to $24.55. The next dividend payment will occur on April 1, and it goes ex-dividend on March 11. As of late volume has been rather heavy, so pick this up when you notice an inverse head and shoulders formation.
Barclays Series D Preferred ADR (BCS.PD) has shown a strong upward trend over the past four weeks. It is also trading at levels pre-Lehman. The current yield is 7.7 percent. The ex-dividend date is February 25, and the dividend is paid out on March 15.
Citigroup Series Q Preferred (C-Q) has been callable at $25 a share since September 2009. It has shown a strong upward trend over the past year, when it climbed over seven points. The current yield is 6.25 percent. The next dividend payment occurs on March 27.
JP Morgan Chase Series J Preferred (JPM-I) exhibits stability, as it has traded between $25 and $29 over the past 52 weeks, and in the 27s over the past 3 months. The current yield is 7.8%. The next dividend payment is on March 1, but it already went ex-dividend on January 27. Because preferred stocks tend to have higher bid-ask ranges closer to ex-dividend dates, buy it at lower levels ASAP to reap in a higher yield.
Fifth Third Bank Series C Preferred (FTB-C) is paying out $2.21875 in total dividends, which is a current yield of 8.4 percent. Since January 2010, it has been virtually trading sideways. It is also trading $10 above mid-September 2008 levels. The most recent dividend payment was February 15, so pick it up soon at lower price levels.
Regions Financial Series Z Preferred (RF-Z) pays out the same dividend amount as Fifth Third and has virtually the same current yield. It has also been trading sideways since January 2010, and trading 5 to 6 points above mid-September 2008 prices. The next dividend payment occurs on March 15, and it goes ex-dividend at least two business days before then.
KeyCorp Series F Preferred (KEY-F) came out in Q2 2008, and has made all dividend payments. It is yielding 7.7 percent currently. The 52 week range is $21.25 - $26.32. As a sign of confidence, it is trading 10 points higher than pre-Lehman levels. The next dividend payment is on March 15.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.