SQFTW - The Dangers Of High Yield Preferreds
2024-07-05 16:09:05 ET
Summary
- Some high yield preferreds offer stable double-digit yields and potential for capital gains, trading at discounts to par value.
- Preferreds are paid through dividends, liquidation preference, and redemption, but sit below debt in the capital stack, making them riskier than bonds.
- Risks include lack of equity cushion, business volatility, and bad actor risk, highlighting the importance of thorough research and caution when investing in preferreds.
There are some excellent opportunities among high yield preferreds with the potential to capture stable double-digit yields. We are also seeing capital gains potential with some trading at steep discounts to par value despite a high chance of redemption at par in the next few years. In response to this opportunity, we have been posting our research such as our recent piece on Chimera Investment Corporation preferreds ( CIM )....
The Dangers Of High Yield Preferreds