When the federal government started bailing out the financial sector at this time last year, part of the package included wiping out the preferred shares of several large institutions and forcing others to issue preferred shares directly to the government, in the eyes of many, nationalizing them. The upshot for the preferred share market was an unmitigated disaster; the entire asset class was driven into the doghouse as investors feared their holdings would be next.
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It didn't help, either, that nearly the whole preferred share market is made up of financial offerings. As the crisis unfolded, preferreds took it on the chin from two directions: their own issuers' mismanagement and dubious government intervention. But lately there has been a strong recovery in the preferred share market. The financial system is again operating as it once did (with some notable exceptions) and the markets reflect an increasing global confidence on the part of investors that the worst is behind us.
But still there are questions and no shortage of doubts that all will weather the storm equally well. For those who harbor such apprehensions, we've gathered here a number of 'A' rated preferreds for your perusal.
Dividends from the Best Rated Banks
HSBC Holdings plc has a preferred share (NYSE:HCS) with an 8.125% coupon that currently yields 7.6%. The stock has rallied over 100% since bottoming in March of this year and now trades above par for the first time since September 2008.
HSBC is one of the world's largest financials, with a market cap in excess of $200 billion and operations in 80 countries on every continent. The preferreds are rated A1 by Moody's and A- by Standard & Poor's.
Spanish Banking Megalith
Santander Finance's 6.80% 'A' Series preferreds (NYSE:STD-A) yield 7.20% after rising over 250% from 52-week lows set in the first quarter of 2009. The company is another global player, headquartered in Spain with operations in Europe and Latin America and a market cap of $130 billion.
Santander's preferreds are rated A2 by Moody's and A- by S&P. The bank recently reported that thanks to the recent economic recovery, it's on track for double digit growth from its British operations.
Prudential plc's 6.50% perpetual preferreds (NYSE:PUK-A) now pay 7.6% and have outdone the competition in capital appreciation over the last six months, rising by a phenomenal 475%. S&P rates the shares A-. Prudential plc is a retail insurance provider based in England.
Preferred shares have been a volatile instrument over the last year, but these three issues offer income investors the additional advantage of being highly considered by the premier debt rating agencies. (To learn more, see A Primer On Preferred Stocks.)
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