Venturing into preferred stock

For years I have known about preferred stocks, but the complexity and mysteries have kept me away. Recently I read an article in which the long-term strategies involved growth companies such as Amazon (AMZN), Apple (AAPL), but also included income stocks like BP (BP). Clustered in the income stocks was a suggestion to buy Ford (F) but not the common shares. Rather the idea was to pickup preferred shares.

I looked into these Ford preferred shares to see what the attraction was. I found that Ford has a couple different choices in the preferred area (F-S & F-A). Upon closer looks I decided that F-A was the correct pick for me. F-A has a coupon rate of 7.50%, however the preferred is selling below the $25 coupon price. When valued based on the market price the yield is actually 8.69%.

The risk is that Ford could buy this back from the market (since it is past its call date), but in that case I would get $25 a share (which is quite a bit more than I paid). On the plus side the maturity date is 2043, so I could in theory keep collecting the yield until that point.

Preferreds seem to be a good way to secure a yield in a slightly easier way than going to the bond market. That said the bond market is quite a bit safer, but in looking at total returns, you get more return for the added risk in preferreds. I would not likely build an entire portfolio of preferreds, but it does seem to be a good way to diversify my high yield stocks. There is certainly no car maker paying a dividend of any sizable amount, but now I am able to get my high yield while broadening my exposure.

RBA Raises Rates Again

For the third time in three months, the Reserve Bank of Australia raising its key interest rate (this time to 3.75%).

On 6-October I explained why this was a good opertunity to get into FXA...

From October 6th till today FXA is up over 5.5%
That 5.5% is just the FXA value, and does not include the two distributions/dividends that have also been paid out in that time.