3 Dangerous Truths I Learned The Hard Way As A Preferred Stock Investor

2025-04-24 08:15:00 ET

Summary

• Why preferred dividends aren’t as safe as they seem—and could disappear overnight.
• The brutal reality of interest rate risk that most preferred investors ignore.
• The high-yield trap that wipes out more retiree wealth than you might think.

There are many reasons why preferred equity investments ( PFF ) have significant appeal to income-focused investors, especially retirees who plan to live off of passive income from their investments. For example, preferred stocks, as fixed income instruments that lack a growth component in the vast majority of cases, tend to pay out high dividend yields. In fact, they often offer the highest yields in the capital stack, since many times common stocks do not pay out much in the way of dividends, since the company is focused on growth, while bonds pay out lower yields than the preferred, since they are higher in the capital stack and therefore lower risk....

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