Penny Stocks crisis
Please Help! Wondering if there are any investments out there in todays market that yield 7-9%?
That is, with relatively low risk!!! I have a lot of my portfolio tied to financial preferred stock (yielding 8%), to which i draw from to live off of. I was just looking to diversify a little and was hoping to hear suggestions as to other instruments that yield a similiar yield with a low risk. Thanks
Preferred shares are probably not as safe as you think. Most are rated as junk status and have part of the advantages and disadvantages of both stocks and bonds. If interest rates climb, the investment normal decreases and if the stock is in risk of default, the investment decreases. Also if the bank gets in trouble, they may suspend dividends making the preferred shares almost useless (basically you’ll get only pennies on the dollar for your shares). Most are in banks, REITS, or utilities (probably the safest). The reason that most are junk status is that you are behind corporate bonds in payoff (even junk bonds) and dividends can be suspended. Therefore they are usually only slightly above junk status if the corporate bonds for the company are rated AAA.
Although high dividend yielding blue chip stocks (4% to 7%) probably don’t return the yield that you are currently getting, personally I think they are safer. Besides the dividend, you get any appreciation of the stock (normally much more than a preferred share returns), possibility of dividend increases, and you get diversified out of the risky banking sector.
Some stocks that pay high yield dividends.
DWX (international etf) 4.75%
DIA (dow etf) 2.90%
XLU (utilities etf) 4.50%
These stocks may drop 30% if there is another banking crisis but many of your preferred shares will likely drop much further (JP Morgan preferred shares dropped about 60% during the last crisis and Citi dropped about 80%)
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