Preferred Shares Great Source of Retirement Income
March 18, 2017
The 8.0% Retirement Income Stream You Likely Haven’t Considered
The Federal Reserve’s low-interest-rate policy has destroyed retirement incomes for millions of Americans.
Saving accounts payout next to nothing. Bank certificates of deposit barely yield one percent. With lower payouts from fixed-income investments, more and more retirees have been forced to dip into their principal.
The consequences have been devastating. More retirees report having to offer less assistance to family members. Less money is available for spending less on travel, recreation, or entertainment. Spending, it should be noted, the economy badly needs to fully recover.
That said, one pocket of high yield remains. Thousands of retirees count on these for extra retirement income. You can rely on these top dividend stocks for safe, sturdy, and sizable returns.
I’m talking, of course, about preferred stock.
Preferred stock is a class of ownership with a higher claim to assets than common shareholders. Companies issue these shares to raises money for investments or other new projects. In exchange, they pay a steady income stream to owners.
You could think of preferred stock as a kind of priority boarding pass. Most airlines have done away with assigned seating. Today, you simply check in a get assigned to one of three groups: A, B, or C.
Group A boards first and gets the best seats. Group B boards last and usually get stuck at the back. It can make the difference between a comfortable aisle seat and getting crammed between two strangers.
Owning preferred shares moves you to the front of the line. Owners must be paid before common shareholders. A company would have to slash its payout to zero before cutting the preferred dividend by one red cent.
Better still, they have big yields. Preferreds usually come with a fixed payout, much like a bond coupon. Many out yields of five, seven, or even nine percent.
Finally, they’re tax-efficient. Bond interest is heavily taxed, often at your top marginal tax rates. Preferreds, in contrast, are usually qualified dividends, with a top Federal tax rate of 20%.
All and all, you could do a lot worse than preferred shares for retirement income.
But rather than buying these top dividend stocks individually, I prefer “one-click” options like the Nuveen Preferred Securities Income Fund (NYSE:JPS). Many of the fund’s top holdings include names I’m sure you’ve heard of, including Allstate Corp (NYSE:ALL), General Electric Company (NYSE:GE), and JPMorgan Chase & Co. (NYSE:JPM).
Source: StockCharts.com
JPS gushes income, too. Right now, shares pay out a monthly distribution of 6.2 cents each. That comes out to an annual yield of about eight percent.
In addition, JPS trades at an five-percent discount to net asset value. You could think of this like buying a dollar for $0.95. For investors, we get a big margin of safety on top of a dependable income stream.
Bottom line: if you’re looking to beat the Federal Reserve, take a second look at preferred shares. They are a great source of extra retirement income. And with payouts topping eight percent, you need to review top dividend stocks like JPS.
Also Read:
5 High-Yield Preferred Stocks for 2017
7 Best Preferred Stock ETFs for 2017
