What Are The Pros and Cons of Preferred Stock ETFs?

Preferred Stock ETFs are exchange-traded funds that allow investors to buy a portfolio of preferred stocks. Keep reading to find out the Pros and Cons of Preferred Stock ETFs.

Preferred stocks combines the strengths of bonds with higher interest rates like common stock. However, they are subject to more risk, have less control than a traditional shareholder, and have minimal growth.

What Are Preferred Stock ETFs?

Preferred stock ETFs can be a smart addition to any portfolio. This is especially true if the investor wants to earn more of their income from dividends.

As we mentioned before preferred stock ETF invests in preferred stocks. Preferred stocks are a class of ownership in a corporation with a higher claim on assets and earnings than common stocks.

Preferred stocks earns you fixed dividends in perpetuity. Basically this means that so long as you own the preferred stock, you will earn the dividend. For the best interest rates you can always see our full list of Best Bank Rates.

Pros and Cons of Buying Preferred Stock ETFs

Before buying preferred stock ETFs, investors should learn the pros and cons of these investment securities.

These are the pros of investing in preferred stock ETFs:

• Higher Dividends: Compared to common stock, preferred stock will generally pay higher dividends.
• Preference in bankruptcy: In event of bankruptcy, preferred stocks are ahead of common stocks in liquidity. Meaning preferred stocks get paid out before common stocks do.
• Less market risk than common stock: Dividend payments are fixed like a perpetuity and make preferred stocks less risky than common stocks.

Here are the cons of investing in preferred stock ETFs:

• Interest Rate Risk: Preferred stock are interest rate sensitive like bonds and are not ideal investments when interest rates are rising. This is because prices typically fall when interest rates are increasing. Common stocks on the other hand may increase in value during rising interest rates.
• No Voting Rights: Unlike common stock, stockholders do not have voting rates when they own preferred stocks.
• Minimal Growth: The trade-off for low market risk and fixed dividend rates is that preferred stocks have little to no rise in value.

Start Investing Today

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If you have the funds as a beginning trader or have reached the funds to be able to trade at a greater level, this is a great opportunity for you not only step up your game, but you can earn a bonus for doing so.

Bottom Line

Preferred Stocks are a low-risk investment opportunity for investors to take advantage of. If you are looking to diversify your portfolio, consider investing in a preferred stock ETF today.

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