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3 Preferred Stocks for 6%+ Yields and Upside

By Alexander MacLennan – Feb 4, 2014 at 7:00AM

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Three great preferred stocks from three different industries to begin your income search.


Source: Matthew Field

In times of ultra-low interest rates, many investors are having a tough time finding income-producing investments that still have upside potential. But preferred stocks could be exactly what these investors are searching for. Here are three that fit this criteria to begin your income hunt.

A 7.2% yield from across the pond
As the financial services industry rushed to secure funding during the financial crisis, Royal Bank of Scotland Group (NWG 1.13%) sought help from the British government. In return the government took an 81% stake in the troubled bank, diluting common shareholders into oblivion.

Although the dividend on common stock remains suspended,  income investors can still collect decent yields from the preferred shares. Among the most attractive are RBS Preferred Series N (NYSE: RBS-N), which yield 7.2% and trade just above $22 per share. Not only can income investors collect relatively large dividends, but they also stand to benefit from capital appreciation if the market begins to regain confidence in RBS, whether through a government share sale or a broader recovery in European banking.

Store your money in this 6.6% yield

Source: Ed Chambliss

Public Storage (PSA 0.50%) is the place to go if you need to stash your stuff somewhere. Having interests in over 2,000 storage facilities, this $27 billion company is working to conquer the self-storage market through acquisitions and expansion. The common stock yields just over 3.5%, but investors in the preferred stock can collect even more.

Yielding 6.6%, Public Storage Preferred Stock Series T (NYSE: PSA-T) provides nearly twice the yield of the common stock while still trading under $22 per share. If Public Storage can continue growing earnings, greater investor confidence could push this preferred closer to its liquidation value of $25. One important thing to note is that this preferred is not eligible for the qualified dividend tax rate since it is issued by a real estate investment trust. As a result, investors should factor a greater tax liability into their calculations and consider holding this security in a tax-exempt account.

Protect your future with this 6.5% insurance yield
With shares of MetLife (MET 0.30%) yielding only 2.2%, income investors may want to look toward a different MetLife security for their investment. With MetLife Preferred Stock Series B (NYSE: MET-B), investors can collect a 6.5% yield on a security trading around a dime under liquidation. While this preferred does not have the same amount of upside as the others, buying on a dip could be an opportunistic way to begin collecting this dividend.

MetLife Preferred Stock Series B carries another advantage over many other income-based securities issued by insurance companies. Since this preferred is actually preferred stock and not a subordinated debenture or exchange traded debt, dividends are eligible for the qualified dividend tax rate. Investors should remember to factor this component in when comparing yields on various securities.

Finding yield
Preferred stocks can provide income hungry investors with the income they're looking for, but you need to know where to start. Preferred stocks from Royal Bank of Scotland Group, Public Storage, and MetLife are a great place to begin your search. Income investors should also check out the other preferred stock offerings by these companies-since all three have multiple series, investors can decide which one suits their investing strategy best.

Alexander MacLennan has no position in any stocks mentioned. This article is not an endorsement to buy or sell any security and does not constitute professional investment advice. Always do your own due diligence before buying or selling any security. Alexander MacLennan is not a tax professional and you should consult a reputable tax professional before making any investment decisions. The Motley Fool has no position in any of the stocks mentioned. 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.

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Stocks Mentioned

MetLife Stock Quote
MetLife
MET
$76.95 (0.30%) $0.23
NatWest Group plc Stock Quote
NatWest Group plc
NWG
$6.26 (1.13%) $0.07
Public Storage Stock Quote
Public Storage
PSA
$298.61 (0.50%) $1.49

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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