In our model portfolio of Preferred Stocks, we seek a target annual return (dividends plus share price appreciation) of 8% to 10% per-year, notes Harry Domash, income expert and editor of Dividend Detective.
As background, when discussing preferred stocks, the market yield is the return based on the dividend and current trading price. For instance, the market yield for a preferred trading at $10 per share and paying $1.00 annually would be 10%.
Meanwhile, the yield-to-call is the average annual return assuming that your preferreds were called at their call price ($25) on their call date (a worst-case scenario).
Within our Preferred Stocks portfolio, we’re adding one new preferred credit-rated investment quality that is yielding 5% to new money — Brookfield Infrastructure Partners 5.00% Series 14 preferred units (BIP-B).
Brookfield, based in Canada, owns utility, transport, energy and data infrastructure assets in North and South America, Asia, and Europe. S&P rates the preferreds at (BBB-) investment quality.
Recently trading at $24.85 per share, the market yield is 5% and the yield to its 2/16/26 call date is 5.1%. Dividends are taxable at regular rates.
Among the preferreds in our portfolio, two are rated as "okay to buy" — First Horizon National Non-Cumulative Preferred Shares class C (FHN-C) and Ford Motor Company 6.20% Notes Due June 1, 2059 (F-B). Both preferred issues have moved down in price enough so that we can again recommend adding to positions.
Meanwhile, the New Residential Investment 7.125% class B (NRZ-B) and Pitney Bowes 6.70% notes March 2043 (PBI-B) both recently traded at least 10% below their $25 per share call prices. As such, they now offer the best upside potential among the preferred issues in our portfolio.
Finally, our highest paying preferred stocks based on market yields include Ontrak Cumulative Perpetual Preferred Shares 9.5% series A (OTRKP) at 9.9%, Fortress Transportation Investors LLC Preferred Shares series A (FTAI-A) at 8.8%, and Spark Energy 8.75% Cumulative Redeemable Perpetual Preferred Shares series A (SPKEP) at 8.7%.