Healthy Income From European Preferreds

It's no secret that the majority of preferred shares are issued by banks and other financial institutions and that they've had tremendous price appreciation as an asset class in the last half year. But what's less known is that there are a great number of foreign domiciled preferred shares that trade on American markets with even greater yields and have yet to catch up to their U.S. based counterparts. In most cases, the runs have been stellar, but they've yet to reach par.

Below, we focus on several large cap, European financial preferred shares with strong credit ratings and yields worth noting. For income investors, it rarely gets better.

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Dutch Financial Power
ING Group N.V. is a global banking and insurance giant based in the Netherlands with a current market cap in excess of $32.5 billion. The company's 8.5% Perpetual Preferred shares (NYSE:IGK) offer an annual 12.3% yield and have experienced extraordinary price appreciation in the last six months, rising from a lowly $3.84 to over $23.00, before settling back to $17.50 recently.

The shares are rated by Moody's at Ba1 and by Standard & Poors at BBB.

In recent news, British competitor HSBC Bank (NYSE:HBC) made a $1.65 billion bid for ING's private banking unit. Swiss financial company Julius Baer, among others, was also in the running.

Scottish Banking Legacy
The Royal Bank of Scotland (NYSE:RBS) has a storied history that goes back to its first branch's opening in Edinburgh in 1727. Today its global operations are focused in the U.K. and United States and the company has a market cap of nearly $53 billion.

RBS's 7.25% 'T' series preferred shares (NYSE:RBS-T) are rated A3 by Moody's and BB by S&P and pay a whopping 15.6% annually. And that's after the shares shot up by over 430% in just the last two quarters.

German Insurance Giant
Not to be outdone, Allianz SE's 8.375% preferred shares (NYSE:AZM) (which are actually bonds issued in $25 denominations) have risen by over 215% in just six months, yet still pay investors over 8.50% annually. The ratings agencies give some of their best ratings to this issue: Moody's an A3, and S&P A+.

The Wrap
Investors should be equally encouraged by the yields available from foreign financial preferreds and by the credit ratings that have been assigned them. Moreover, the momentum that has returned to this asset class as a whole since credit markets resumed normal function also gives confidence that the worst is over. The above three issues stand to continue their rise as the economy and markets stabilize. (To learn more, check out A Primer On Preferred Stocks.)

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