Uncommon Big-Cap Preferred Shares

By Aryeh Katz | September 12, 2009 AAA

A common investment quandary: you spy out a company (or several) that have solid operations and management with common stock that offers a reasonable dividend yield, but you're unsure about your timing. Will the shares will be good holdings from a capital gains perspective? Will they drop precipitously directly after you purchase? Sure, you have the yield cushion, but can you handle the battering to your portfolio that a 15% or 20% drop in price will engender?

In some cases, it may be a better solution to see if those same companies offer preferred shares. The preferreds will likely outperform the common on a yield basis, and they'll also be less subject to the wild philanderings of common shares in general. Below, we highlight several large-cap, household stocks with preferred shares that offer great yields.

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The Stability of an Established Utility
FPL Group Inc. (NYSE:FPL) possesses one of the largest and most diverse array of energy holdings in the United States. The company maintains the country's third largest nuclear power generation operation, has revenues in excess of $16 billion and operates in 27 states and Canada.

FPL's Series F preferred stock (NYSE:FPL-F) is actually a junior subordinated debenture divided into $25 'shares' that currently pay 7.7% annually. Stability is all but guaranteed here, too: in this last, tumultuous year the shares have fluctuated between $25-29.

The preferreds are rated A3 by Moody's and BBB+ by S&P.

One of the Earliest Dow Components
General Electric Corp. (NYSE:GE) was added to the Dow Jones Industrial Index in 1907, making it the longest running component currently on the index - and one of the largest. GE has a market cap of $155 billion and its preferred shares, 'G' Series, (NYSE:GEG) now offer investors a healthy 6.5% return.

The shares have not been immune, however, to the vicissitudes of this year's market. They bottomed at a 52-week low back in March when questions regarding the viability of GE's finance arm roiled the stock. Since then, the preferreds have appreciated by roughly 90% as it came clear that the threat was far less than first apprehended.

GEG shares are rated Aa2 by Moody's and AA+ by S&P.

Comcast Corp. (NYSE:CCW) 7.00% Series B Notes are currently yielding 7% and are rated a healthy Baa1 by Moody's and BBB+ by S&P (these, too, are notes which trade like preferred shares).

Comcast is a $50 billion company that provides cable services to more than 50 million homes across America.

The Wrap
For income seekers who want the stability of investing in a big company but aren't sure when to do it, preferred shares are a reasonable option. The three companies profiled above offer great yields and less volatility than their respective common stocks. (To learn more, see A Primer On Preferred Stocks.)

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