Preferred Shares, Yes - But Not Financials

Since government intervention in the markets last fall, many investors have shied away from financials in general, not to mention their preferred shares. And many still are concerned that a second shoe is set to drop in the banking sector, with the result that the preferred share market is for many investors the persona non grata of the investment world.

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Even a cursory glance through a list of available preferreds reveals that most are issued by large financial institutions. For reasons specific to that industry, it simply makes more sense to raise capital through preferred issuance. But despite this, there still exists a number of exceptions to the rule: non-financials with at least a mid-cap stature, strong cash flows and robust yields.

For income investors who want to partake in the yield boost offered by preferreds, but fear a repeat of the carnage in the financials last fall, the following three stocks may be worth considering.

They're So Into Labels
Avery Dennison (NYSE:AVY) is a world leader in pressure sensitive labeling materials for the office, retail, automotive and other industrial sectors. The company currently has a preferred share with a 7.87% coupon that yields 10.5% per annum, (NYSE:AVY-A), and which is rated Baa1 by Moody's rating agency and BB+ by Standard & Poor's.

Avery Dennison has a market cap of $4 billion, and trades for a mere 0.65-times trailing sales. Just one week ago, financial firm Robert W. Baird upgraded the Avery's stock for its efforts toward cutting costs, reducing debt and improving cash flow.

A Slicker Preferred Share
Repsol YPF S.A. (NYSE:REP) has a market cap in excess of $31 billion and a preferred share that trades with a current yield of 7.4% (NYSE:REP-A). Moody's rates the issue Baa3, while S&P gives it a BB+.

Repsol is Spain's largest diversified oil and gas company, with global drilling operations and large European and Latin American market share. In less than a year, Repsol's preferred shares have increased in value by over 65%.

Yield on Storage Space
Public Storage Inc.'s (NYSE:PSA) 7.25% Preferred "I" Series stock (NYSE:PSA-I) currently yields nearly 7.50% and is rated Baa1 by Moody's and BBB by S&P.

PSA is a REIT that specializes in the operation of self-storage facilities in the U.S. and Western Europe.

The Bottom Line
One needn't fear all preferred shares just because the majority are issued by financials. There's plenty of yield available for those who dare to dig into the pile and examine a few with solid ratings and healthy dividend yields. (For more, read A Primer On Preferred Stocks.)

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