Although we had a rough start to August, the S&P 500 is up. A lot.
So is the Nasdaq. And the Dow.
Meanwhile, inflation rates are falling… consumer sentiment is up… and the U.S. labor market continues to run strong.
And yet we’ve been hearing for months and months about the “inevitable” recession forecasting. Something’s not adding up.
Here at Intelligent Income Daily, our goal is to find you the best income opportunities even in the midst of confusing markets and pending chaos.
Today, I want to present an investment category you may have never considered before and give you an opportunity to play it as a “Super SWAN.” Which by my definition, takes safety – and therefore the ability to Sleep Well at Night – to a whole new level.
Unlocking the Mystery of Preferreds
So what is this investment category?
It is called preferred stock or preferreds.
And in comparison to “regular” stocks, preferreds have a higher yield, less volatility, and a safer payout model.
Preferred stocks are something of a cross between stocks and bonds, which make them safer than common stocks.
Like bonds, they offer a fixed dividend over a set period of time.
And like stocks, they represent an actual stake in a company.
Most are issued with a par value of $25 per share and listed on the New York Stock Exchange (or other stock exchanges).
The par value is set by the issuing company. It’s often lower than the actual value of the shares.
Preferreds can also be redeemed at par value five years from the original issue date.
And here’s what sets them apart even more:
All preferreds pay dividends
All preferred stockholders are prioritized over common stockholders in general
In the case of liquidation or bankruptcy, preferred shareholder payouts are always prioritized over payouts for common stockholders
Many preferreds have credit ratings like bonds
The majority of companies that issue preferred stock are publicly traded companies with strong credit ratings they’re very proud of.
And they tend to guard those ratings jealously, working hard to maintain quality businesses that are well-prepared to meet their obligations no matter the economic situation.
But in case they somehow do fall on hard times, here’s a little something extra to know…
Real estate investment trust (REIT) preferred shareholders don’t have voting rights, and their stock price appreciation potential is much more limited.
However, they’re much safer – both in terms of price declines and in case of a company default, since preferred stocks get paid back before their regular stock siblings even if something does go very wrong.
Many investors see preferreds as boring because of that intense safety factor.
But they are perfect for times like these.
A REIT Preferred ETF for Even the Most Safety-Oriented Reader
You see, thanks to the Fed’s tightening, these usually unflappable stock prices are down significantly. Which opens up a very real and profitable opportunity for savvy investors.
Since December 31, 2021, the S&P Preferred Stock Total Return Index (SPPREF) has underperformed 7.80% compared to the Bloomberg U.S. Corporate High-Yield Index (JNK).
But this is very likely about to change.
That’s why I’m highlighting today’s preferred, InfraCap REIT Preferred ETF (PFFR).
It has significant diversification across U.S. REITs and preferred shares (105 different securities from 50 different issuers).
I call this ETF a Super SWAN because it combines the safety and sustainability of preferreds with REITs.
REITs are built to be conservative, forced by IRS guidelines to give most of their taxable income (at least 90%) to shareholders by way of dividends. This prompts them to handle their remaining money more carefully.
Currently, PFFR yields just over 7.6%, which compared to 4.5% offered by Vanguard Real Estate ETF (VNQ) is an attractive spread.
And right now, thanks to the confusion in the market, it is trading at a discount and is the perfect time to buy.
So if you’re looking for a free, safe, and sustainable recommendation, look no further than PFFR.
Happy SWAN investing,
Editor, Intelligent Income Daily
P.S. If you are looking to add a single preferred pick to your portfolio, there is one we recently recommended in our High Yield Advisor portfolio.
Right now, it yields 8.25% and has gone up 15.9% since we recommended it. But there is still time to for you to get in on this trade and profit from it…