Funds Of Preferred Stocks
Preferred stock is considered to be hybrid of common stock and corporate bonds, and this could be the reason why investors are not too sure about them. The ones who do know what these stock are, grab them eagerly the moment they are issued. |
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When a company issues preferred stock, it makes a commitment to pay a fixed amount of interest to the stockholder. Any payment that an investor gets is taxable at ordinary income tax rate. However, even then this stock has its advantages. If a company faces financial problems, preferred stockholders are paid before common stockholder. If the company stops paying dividends, it is not in the clear. The company would have to pay preferred stockholders retroactively before it pays any dividends to common stockholders. And, sometimes, preferred stock can be converted to common stock at a specific price and under specific circumstances.
If you want to invest in preferred stock but do not know how to, you should look for funds of preferred stock. There are many mutual funds in the US that have preferred stock in their portfolio. By investing in these mutual funds, you can own shares of preferred stock. In addition, you can also check iShares, which is a preferred stock fund and has 64 Standard and Poor's listed companies in the fund. Most of the companies here are financial institutions like Bank of America and Wells Fargo.
Although many financial institutions are not doing to well and their credit ratings have fallen, it should not deter you from investing in funds of preferred stock. An investor should look for high quality issues of preferred stock and only invest in them. This way the risk will not be too high. However, the investor should be willing to take more than an average risk when it comes to investing in this type of stock.
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