Preferred Stock ETFs with High Dividend Yields

By Investopedia Staff | November 08, 2010 AAA

The allure of high dividends yields makes the idea of investing in the preferred stock of a company very appealing to many investors. Most notably, in the midst of the financial crisis of 2008, investors witnessed Warren Buffett's $5 billion investment into Goldman Sachs (NYSE:GS) through a preferred stock offering yielding 10%. As long as Buffett holds the shares, he will receive $500 million every year in dividend payments.

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. (Looking for more information on Buffett? Then check out Warren Buffett: How He Does It.)

IN PICTURES:




ETFs Dividend Yield Year to Date Market Cap
iShares S&P U.S. Preferred Stock Index
(AMEX:PFF)
7.32% +8.17% $5.98B
PowerShares Financial Preferred (AMEX:PGF) 7.11% +11.52% $1.73B
PowerShares Preferred Portfolio
(AMEX:PGX)
7.05% +6.13% $1.35B
SPDRS S&P 500
(AMEX:SPY)
1.86% +9.71% $80.53B

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 been rising along with the S&P 500 index, but the high yield dividends can offer a level of protection to investors.

Heavy on Financials
All of the Preferred Stock ETFs mentioned tend to be heavily concentrated in financials. The PowerShares Financial Preferred Portfolio ETFs top holdings include Bank of America (NYSE:BAC), Barclays (NYSE:BCS) and Credit Suisse (NYSE:CS). Wells Fargo (NYSE:WFC). Citigroup (NYSE:C) and Metlife (NYSE:MET) 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 Morgan Stanley (NYSE:MS) and JPMorgan Chase(NYSE:JPM).

Final Thoughts
The Preferred Stock ETFs overexposure to the financial services industry may make them a particularly risky investment, 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)

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