Most preferred stocks pay dividends each quarter. And whoever owns the shares on the security's ex-dividend date is going to receive the entire quarter's worth of dividend income, regardless of how many days during the quarter you actually owned the shares.
Even if you only own the shares for a few hours, you will receive 90 days' worth of dividend income so long as you own the shares when the market opens on the security's ex-dividend date. Obviously, knowing which preferreds are about to reach their next ex-dividend date becomes important to buyers looking for a quick dividend.
Distribution of quarterly payers
While most preferred stocks pay dividends on a quarterly schedule, the schedule varies; some pay in January, April, July, and October while others pay in February, May, August, and November. But most (56%) pay their dividends based on the calendar quarter -- in March, June, September, and December.
This chart shows the current dividend distribution used by U.S.-traded quarterly payers.
Because the payment schedule of quarterly payers varies, a robust preferred-stock portfolio generates income every month.
High quality December 2013 payers
There are currently 931 preferred stocks and exchange-traded debt securities (ETDs) trading on U.S. stock exchanges. ETDs are similar to, and are often listed as, preferred stocks, but they are actually bonds that trade on the stock exchange (rather than the bond market). Before online preferred-stock databases and search engines were available, finding out which issues were both high-quality and about to reach their ex-dividend dates took so long that the opportunity would come and go before the candidates could be nailed down.
Fortunately for today's preferred-stock investors, that is no longer the case. Using an online database and preferred-stock search engine (the CDx3 Notification Service database is used here -- see disclosure), finding high-quality issues that are within days of providing their shareholders with 90 days' worth of dividend income now takes just a few seconds.
I define high quality as those securities having an investment-grade rating from Moody's. They will provide cumulative dividends -- i.e., if the issuing company misses a dividend payment, it has to make it up to you. They are currently call-protected, they trade below their $25 par value (positioning you for a capital gain in the event of a downstream call), and offer a dividend rate (coupon) of at least 6.5%, making a downstream call more likely than with lower payers.
Here are the 10 U.S.-traded high-quality preferred stocks and ETDs (shown in green font) that have, or are expected to have, an ex-dividend date in December 2013.
Those who own shares of any of these 10 securities on the indicated ex-dividend date will receive the upcoming quarterly dividend payment from the issuing company.
Quarterly payment amount
How much is the payment going to be? Here's the formula:
($25 x dividend rate)/4
The dividend rate value is the percentage that you see in the "Div" column in the above table. For example, DLR-E is issued by Digital Realty Trust (NYSE:DLR) and pays a 7% annual dividend. The dividend preferred-stock shareholders receive is always based on a security's "par" value, not your purchase price or the current market price.
The par value for each of the securities shown above is $25 per share, so DLR-E pays an annual dividend of $1.75 per share ($25 times 7%). Dividing this annual amount by four gives us the quarterly dividend payment of $0.44 per share to those holding shares on the morning of DLR-E's Dec. 11, 2013 ex-dividend date.
These 10 "high quality" December payers not only have several risk-lowering characteristics that are pretty easy to warm up to, but are also from a diverse array of companies and industry segments.
The seven preferred stocks (black font) listed in the table are issued by six REITs -- Regency Centers (NYSE: REG), shopping centers; Hospitality Properties (NYSE: HPT), hotels; Health Care REIT (NYSE: HCN), health care facilities; Digital Realty, data centers; PS Business Parks (NYSE: PSB), office buildings; and Kimco Realty (NYSE: KIM), shopping centers.
The remaining three securities are ETDs (green font) from two telecommunications companies -- United States Cellular (NYSE: USM) and Qwest Corporation, which is CenturyLink's (NYSE: CTL) cable-laying subsidiary.
If the characteristics of these securities are consistent with your goals, resources, and risk tolerance, you can make 90 days' worth of dividend income after having invested for only a few days during December. Just remember that you must own the shares prior to the security's December ex-dividend date, and you'll be in the chips going into the new year.
Doug K. is the author of Preferred Stock Investing, Fifth Edition and owner of the CDx3 Notification Service database that was used for this article. He has no position in any stocks mentioned. The Motley Fool recommends Health Care REIT. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.