Buying Preferential Treatment

Looking for higher yields? A hybrid offered by blue-chip companies might be your solution

owner of KBC Securities Inc., a black brokerage firm in Cincinnati, says it’s also important to assess the financial condition of the issuer because you’re receiving interest payments based on the company’s ability to pay the dividend. The yield investors get on preferred stocks depends on current interest rates, the credit rating of the issuing company and investor interest in the offering, experts say. Your best bet, if you’re seeking a relatively safe, high yielding alternative, is to stick with traditional preferred securities with companies with a credit rating of BBB or better.

Brooks notes that individual investors can also get new- issued preferreds at no cost. Most come out at $25 a share. By no cost, Brooks explains, the sales credit — or spread you’d pay to your broker — is already built into the price of the preferred.

What looks good? We scanned the market in August and came up with some good opportunities, solid enough to keep your risk to a minimum. Bankers Trust (symbol: BT.A), priced at $26, has an annual dividend of $2.03, for a yield of 7.81%; Bank of New York (BK.C), at $25.50, has an annual dividend of $1.95, yielding 7.64%; and Travelers Capital 1 (TRV.E), priced at $25.88, has a dividend of $2, yielding 7.72%.

Pages: 1 2