My Favorite Preferred Stock For 6% Income And Peace Of Mind

Introduction I have said it before, and I say it again. While the market may be trading close to an all-time high, the investing environment has become challenging. That’s not my way of saying the market is in for a steep decline, but a reason why we may have to be more picky in our investment processes.  Fidelity noted this as well, as it mentioned that due to shifts in risks, investors may need to find new sources of resilience. Generally speaking, that’s a sound statement in this environment. The problem is that diversification can often end up in diworsification, especially if investors end up selling their crown jewels simply because they feel we’re in a bubble. That kind of diversification is often nothing more than watering the weeds and cutting flowers.  It’s also one of the reasons why I have never subscribed to the idea that we need to diversify away from American equities despite their elevated (on paper, at least) valuations.  Going into this year, the U.S. was, by far, the most expensive equity market based on a forward P/E ratio. It’s more expensive than at any point since the year 2000. The cheapest markets are emerging markets, China, the United Kingdom, and some other spots.  [Inline image] Source: JPMorgan So far this year, investors have reacted accordingly, as Bank of America data shows roughly $50 billion in net inflows into developed markets. Close to $40 billion of this went into international markets. The U.S. got close to nothing. The recent situation surrounding Greenland was one of the reasons. Essentially, it was very similar to what we saw last year when the trade war and NATO negotiations caused the market to believe it was time to find opportunity elsewhere. [Inline image] Source: Bloomberg Although I agree with the thesis that some international stocks have attractive valuations, I have never made the case to avoid the U.S. In fact, I’m opposed to moving capital out of this market, as this is a rather predictable and trustworthy jurisdiction, especially compared to emerging markets.  I can buy emerging market exposure through U.S. companies that do business overseas.  I can buy “cheap” stocks in the U.S. because this market is top-heavy, which has distorted the valuation picture.  In a market with thousands of U.S. stocks, I can buy every type of business and investment vehicle I want. I sometimes feel like a kid in a candy store.  This includes income.  When it comes to income, I take even less risk. When we are retired, there’s no margin of error. Sure, there are some great income stocks in other developed markets, which I will cover in the months ahead, but most of my capital, I want in the vehicles where everything aligns.  Today, I’ll give you one of my favorites, which is an investment I discovered last year.  I don’t own it because I’m 30 and not looking to retire. However, if I were to retire, this one would make the cut, as it brings a few very unique things to the table.  Spoiler alert: it yields 6% and comes with a risk profile that’s quite unusual for a yield that high (in a positive way).  So, let’s get to it! The Benefits Of Buying Preferred Stock Before we get to my security, we need to briefly get over some basics, especially for the people who are somewhat new to preferred equities. Often, preferred stock is called a “hybrid” security, as it has characteristics we also find in common stock and bonds.  They have priority . They are called “preferred” because investors have a priority over common stockholders. A company that has outstanding preferred stock cannot pay a single penny of common stock dividends until preferred dividends are paid in full. Often, preferred stock is cumulative, which means preferred stockholders who do not receive dividends due to financial headwinds need to be paid in full before common shareholders can receive a dividend.  Their inc