Investors can find attractive yields in preferred securities, even amid potential challenges this year, as noted by Bank of America. Preferreds blend features of both stocks and bonds, offering par values with income streams and trading on exchanges like equities. After a December sell-off, preferred stock had a notable return of 7% in 2024, outperforming investment-grade corporate bonds. The ICE BofA Core Plus Fixed Rate Preferred Securities Index has an effective yield of 5.04% and a yield to maturity of 6.28%. While many preferreds have long maturity dates or are perpetual, they often include “call dates” for issuer redemption. Despite expected rocky returns due to a less aggressive Federal Reserve in lowering interest rates, shorter duration structures may be favored. Bank of America recommends several $25 par fixed-rate preferreds with two years of call protection or significant discounts to par, as well as fixed-to-floating rate preferreds, which performed well when investors favored shorter durations. For broad-market exposure, investors can look into exchange-traded funds like the iShares Preferred and Income Securities ETF (PFF) and the Global X U.S. Preferred ETF (PFFD), both yielding attractive returns in 2024.
