With a likely fifth interest hike scheduled for December 16, I believe it is time to buy into the preferred stock sector. This part of the market is, by almost every measure, on sale, suggests Bryan Perry, editor of Cash Machine.
As a smart way to close out the year with a new high-yield pick of the month, I’m recommending we get long a former big winner for us within the universe of preferred securities: the Virtus InfraCap U.S. Preferred Stock ETF (PFFA).
PFFA is an exchange-traded fund that provides active management from a highly experienced team while offering excellent diversification. The ETF seeks current income and, secondarily, capital appreciation, through a portfolio of over 100 preferred securities issued by U.S. companies with market capitalizations of over $100 million.
To gain the kind of yield that I’m seeking for Cash Machine subscribers, PFFA utilizes modest leverage (typically 20-30%) to enhance portfolio beta. Options strategies are also used to enhance the portfolio’s current income.
It has everything I’m looking for in the bond equivalent space — preferred stocks with some sizzle. The stock went public in May 2018 at $25 per share, started paying a monthly dividend in July and hasn’t missed a beat since.
The price fell to the low figure of $18 when the yield on the 10-year Treasury note hit 4.15%, signaling to me that we are entering a bond market that will quickly meet inflation when inflation begins to pull back by the end of the year.
The top 10 holdings within PFFA make up 38% of the total portfolio, and most of the top holdings are familiar names that have strong underlying fundamentals. Trading at around $18.30, shares of PFFA pay a current annual dividend of $1.95 per share, with dividends paid out on a monthly basis. This translates to a current yield of 10.64%.
So, while the market gyrates and oscillates while the financial media fans the flames of fear, let’s get long in some high-quality preferred stocks with an enhanced income strategy with this new pick that will make for a strong holding in the Extreme Income Portfolio. Buy Virtus InfraCap U.S. Preferred Stock ETF under $19.