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Let me explain my love affair with preferred stocks. They are the safest high-yield investments I can name. They are basically bonds. They sit right below bonds in the capital stack. So if the company goes bankrupt, bondholders get paid first, then preferred stock holders get paid before common stock holders.
Even better, nothing happens to a preferred dividend as far as a cut until all common dividends are cut first. Of course, you haven’t invested in a company that had any risk of cutting a common dividend in the first place, have you? Here are my three favorites among the best preferred stocks.
Best Preferred Stocks: Ashford Hospitality Trust
Why do I love Ashford Hospitality Trust (NYSE: AHT) so much? I love it so much my editor told me to stop writing about it. So I’m not. I’m writing about both the Series E and Series D preferred stocks instead.
Here’s why I believe you cannot buy a better preferred stock. When it comes to being tested, Ashford’s preferred have been through the fire of the housing crisis. With hotel revenues down 17% year over year, with hotels scrambling to cut expenses, to cut common and preferred dividends to preserve cash, with hotels barely able to survive, Ashford Hospitality managed all of these. It never cut its preferreds.
The preferred E issue yields 9% and the preferred D issue yields 8.45%.
Best Preferred Stocks: Kimco Realty
Kimco Realty (NYSE: KIM) has a Preferred I Series that’s well worth looking at. Although the economy hasn’t been as robust as we’d like, shopping centers are holding up. Kimco acquires, develops, and manages 564 of them across 38 states, accounting for 90 million square feet of space.
Over the past few years, Kimco has sold off a ton of properties – almost 270 of them and about 32 million square feet of space. It is redeploying that capital in intelligent ways and treating shareholder equity with respect.
As it is, REITs are wonderful because they should be able to generate predictable cash flow from assets in a sector in which management has expertise. Generally, these REITs will pay a very nice common dividend. However, in cases of Kimco, it may also raise capital buy selling preferred stock.
The I Series is a 6% issue, although it currently yields 5.8% because it trades about 3% over par.
There are a host of straight-up banking or investment banking stocks out there, and almost all will issue multiple preferred stock classes. You have so many choices here, but I always like to go with the big names that are, well, too big to fail.
Best Preferred Stocks: Wells Fargo
Wells Fargo (NYSE: WFC) may be the most solid bank in the country. Most of the other super-large banks have issues of one kind or another, but Wells continues to power forward. It is now operating in virtually every aspect of financial services and here’s a partial list: Lines of credit, auto floor plan lines, equity lines and loans, equipment and transportation loans, education and residential mortgage loans, equipment leases, real estate and other commercial financing, small business administration financing, venture capital financing, cash management, payroll services … I could go on and on but you get the picture.
Wells Fargo is a behemoth. It isn’t going anywhere and that’s great news for preferred shareholders. It has ten different preferred series to choose from, but the one with most value is the Series P 5.25% preferred, which trades at $25.64.
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