The allure of dividends makes the idea of investing in the preferred stock of a company very appealing. In recent weeks investors have witnessed Warren Buffett's $3 billion investment into General Electric (NYSE:GE) and more recently the government's investment into large U.S. banks like Citigroup (NYSE:C) and Bank of America (NYSE:BAC) with consideration in both deals being the receipt of dividend paying preferred stock.
Although corporations are typically the largest buyers of preferred stock, individual investors also have an opportunity to participate through the use of Preferred Stock ETFs. In this article we'll examine some of the top preferred stock ETFs to see why they have fared so poorly as of late. (Looking for more information on Buffett? Then check out Warren Buffett: How He Does It.)
|ETFs||Yield||Year to Date*||Size|
|iShares S&P U.S. Preferred Stock Index
|PowerShares Financial Preferred (AMEX:PGF)||11.79%||-27.36%||$273M|
|PowerShares Preferred Portfolio
|SPDRS S&P 500
|YTD Through October 15, 2008|
Preferred stock holders give up their voting rights for the opportunity to receive a steady stream of dividend payments. In Buffett's GE deal, Berkshire Hathaway is entitled to receive a 10% dividend pay for its $3 billion investment. Institutions tend to hold preferred stock because of their ability to deduct 70% of the dividends earned on the investment.
The Preferred Stock ETFs mentioned are not the place to look if your searching for an investment vehicle that is non-correlated to a broad market index like the S&P 500. Each of the Preferred Stock ETFs mentioned has fallen along with the S&P 500 index, but the high yield dividend of PFF and PGX can offer a level of protection to investors.
Heavy on Financials
All of the Preferred Stock ETFs mentioned are heavily concentrated in many financials that are at the beginning stages of either seeking additional capital or receiving government assistance in order to navigate through the current financial crisis. The PowerShares Financial Preferred Portfolio ETFs top holdings include Bank of America, Merrill Lynch (NYSE:MER) and Credit Suisse (NYSE:CS). Wells Fargo (NYSE:WFC), Citigroup and Freeport-McMoran (NYSE:FCX) are among the leaders in the iShares S&P U.S. Preferred Stock Index Fund ETF. Among the top holdings of the PowerShares Preferred Portfolio ETF include Merrill Lynch and ING Groep (NYSE:ING).
The Preferred Stock ETFs overexposure to the financial services industry makes them a particularly risky investment at the moment, but for an investor with a long investment time horizon and a preference for dividend paying investment vehicles the preferred ETFs are an option to consider.
To learn more, see Five Ways To Find A Winning ETF.
Stock AnalysisA summary of what Allstate Insurance sells and whom it sells it to including recent mergers and acquisitions that have helped boost its bottom line.
Chart AdvisorCopper prices have been under pressure lately and based on these charts it doesn't seem that it will reverse any time soon.
Options & FuturesInvesting during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
Mutual Funds & ETFsLearn about the differences between Vanguard's mutual fund and ETF products, and discover which may be more appropriate for investors.
Mutual Funds & ETFsLearn about the difference between using mutual funds versus ETFs for retirement, including which investment strategies and goals are best served by each.
Mutual Funds & ETFsLearn about reinvesting ETF dividends, including the benefits and drawbacks of dividend reinvestment plans (DRIPs) and manual reinvestment.
Stock AnalysisLearn about large changes to Berkshire Hathaway's portfolio. See why Warren Buffett has invested in a commodity company even though he does not usually do so.
Investing BasicsHeld onto a stock for too long? Selling at a loss is never ideal, but it is possible to minimize the damage. Here's how.
Mutual Funds & ETFsDiscover the three Vanguard funds tracking the S&P 500 Index, and learn about the characteristics and historical statistics of these funds.
Forex FundamentalsDiscover the different options that are available to investors who want to obtain exposure to the Chinese yuan, including ETFs and ETNs.
Mutual funds, when compared to other types of pooled investments such as hedge funds, have very strict regulations. In fact, ... Read Full Answer >>
Exchange-traded funds (ETFs) can generate capital gains that are transferred to shareholders, typically once a year, triggering ... Read Full Answer >>
A hedge fund is a type of investment vehicle and business structure that aggregates capital from multiple investors and invests ... Read Full Answer >>
While some Vanguard exchange-traded funds (ETFs) are available commission-free from third-party brokers, a large portion ... Read Full Answer >>
Vanguard completely waives any U.S. dollar minimum amounts to buy its exchange-traded funds (ETFs), and the minimum ETF investment ... Read Full Answer >>
Mutual fund expense ratios cannot be negative. An expense ratio is the sum total of all fees charged by an asset management ... Read Full Answer >>