How does a steady flow of income from dividend payments sound? How about 24 payments a year for an average yield of 7.37%?
If you love earning dividends – especially big, safe dividends, then you should also consider preferred stocks.
In this report, we’ll reveal our six favorite preferred stocks that have been hand-selected from our proprietary income system. These are investments we believe you can buy and hold forever.
Our income system is designed for wealth seekers. It uses the immense power of dividend reinvestment plans to compound dividends and grow wealth in a conservative manner.
But before we list the preferred shares, let’s review the power of compounding…
If you buy 1,000 shares of a $10 stock and receive a 4% yield, you’ll receive $400 a year. That money can then be put back to work.
Reinvesting the dividends will put an extra 40 shares in your portfolio in the second year. And at a 4% yield, your annual dividend would climb to $416. Now, an extra $16 dollars isn’t much. But over time, reinvesting will compound your wealth.
For example, by the 10th year, your yield on initial investment would climb to 5.7%. In the 20th year, it would reach 8.4%, and your annual dividend would rise to $843. Reinvesting over time is definitely worth the wait.
The easiest way to reinvest your dividends is to simply tell your broker that’s what you want to do. Most brokers offer this service free of charge. So you can buy a stock once, pay one commission and hold it for years without paying another dime as the nest egg grows.
One thing to remember: If the stocks are in a taxable account, you’ll owe taxes on the dividends even if you’re reinvesting them and not collecting the cash. So be sure to have enough cash set aside to pay the government every year.
Now that we’ve covered the power of compounding and the importance of saving for taxes, let’s get to the preferred shares…
Safer Than Normal Stocks
Owning preferred stock – also called preferred shares – puts you ahead of normal shareholders. You have a higher claim on both the company’s dividends and its assets: You’re first in line at the drinking fountain.
(However, there is one downside: Preferred shareholders usually don’t have voting rights. Then again, those don’t mean much to the average investor anyway. For example, if you put $100 million into Microsoft, you’d still have less than 0.03% of the vote.)
Preferred shares also combine features of debt. A fixed dividend is paid, but the stock’s price can appreciate. And there are other aspects to consider.
This includes a callable feature, which allows the issuer to buy back shares, often at par value after a set date. Many preferred shares include an optional call date but usually aren’t called early.
A second common feature is convertibility. These shares can be exchanged for a set number of common shares under certain circumstances. But similar to the call feature, this doesn’t normally happen.
However, the best part of preferred shares is the higher payouts.
Most pay a much bigger dividend. Why?
As mentioned above, preferred shares are a hybrid equity and debt instrument. Companies issue preferred shares to raise money for projects, research, and development, acquisitions, etc.
In an effort to entice investors to buy them up, companies will offer a higher yield. It’s the best way to attract money. And it works.
So now that you understand the ins and outs, it’s time to jump in. The right set of preferred shares is a great way to lock in a steady dividend.
Six Forever Preferred Stocks
Different brokers list the same preferred shares under different ticker symbols. It’s a bit confusing, but with the title of each preferred stock below, you can talk to your broker to find the matching securities.
Forever Preferred Stock No. 1: Digital Realty Trust Inc. 5.850% Series K Cumulative Redeemable Preferred Stock (NYSE: DLR.PRK)
Digital Realty Trust supports the world’s leading enterprises and service providers by delivering the full spectrum of data center, colocation and interconnection solutions. Digital Realty’s global data center footprint gives customers access to the connected communities that matter to them with more than 290 facilities in 50 metros across 26 countries on six continents.
The company’s revenue has risen consistently over the nearly two decades since the company went public, increasing at an annualized rate of more than 26% per year since June 2004. And in 2021, the company’s revenue grew more than 13% year-over-year to $4.4 billion.
The company has also seen strong growth in net income, reaching an all-time high of $1.7 billion in 2021 that represented a whopping 380% increase over the previous year.
With growing revenue and net income, Digital Realty Trust will be in a comfortable position to pay preferred dividends for years to come.
It currently yields 5.76%.
Forever Preferred Stock No. 2: Capital One Financial 5% Fixed-Rate Noncumulative Perpetual Preferred Stock, Series I (NYSE: COF.PRI)
You may have one of Capital One’s credit cards in your wallet, and you’ve probably seen its commercials. Its “What’s in your wallet?” campaign has made Capital One Financial one of the most recognizable issuers of credit cards in the U.S.
But you may not know that Capital One Financial is one of the largest banks in the U.S. based on deposits. The financial services company operates under three segments: credit cards, consumer lending and commercial banking.
Capital One Financial is reinventing banking by opening Capital One Cafés across the country. It’s also building a technology company that does banking.
The company’s business is strong, and its model is thriving. And although the company did endure a sharp decline in net income during the pandemic, earnings have bounced back with a vengeance.
In 2021, Capital One Financial generated a record $12.4 billion in net income, a 357% increase over the $2.7 billion in revenue generated a year prior, on a record $30.4 billion in revenue.
With record sales and earnings expected to continue, Capital One Financial should have no trouble putting big dividends in preferred shareholders’ wallets for years to come.
It yields 5.94%.
Forever Preferred Stock No. 3: Compass Diversified Holdings 7.25% Series A Perpetual Preferred Shares (NYSE: CODI.PRA)
Private equity investments aren’t for just rich folks anymore.
Today, nearly anyone can buy shares of publicly traded private equity firm Compass Diversified Holdings. The company buys, operates and sells middle-market businesses.
It owns eight consumer products and industrial businesses, such as Ergobaby and Foam Fabricators. Compass Diversified Holdings makes money off the interest payments on loans it extends to these companies and the profits it receives upon a sale.
At the end of 2021, the company reported net income of $115 million, which was up over 400% from the $22.8 million made the previous year, on a record $1.8 billion in revenue. That reflected a 35% increase to the topline from 2020.
The preferred shares are currently sporting an attractive 7.35% yield.
Forever Preferred Stock No. 4: DCP Midstream LP Series B Cumulative Redeemable Perpetual Preferred (NYSE: DCP.PRB)
DCP Midstream LP is a Fortune 500 natural gas provider that operates through a diversified portfolio of facilities spread across nine states, and is one of the largest natural liquid gas producers in the nation.
The company has increased its total revenue from $6.3 billion in 2020 to $10.7 billion in 2021, or a year over year increase of 70%. The company also increased net income from a loss of $306 million in 2020 to a gain of $391 million.
With a consistent high-yield dividend and improving financials, this company has the cash to continue making payments every quarter for the foreseeable future.
It currently yields 8.41%.
Forever Preferred Stock No. 5: Energy Transfer LP 7.6% Series E Perpetual Preferred (NYSE: ET.PRE)
Energy Transfer LP is one of the largest and most diversified midstream energy companies in the U.S. It has more than 90,000 miles of pipeline, transporting oil and gas products through 38 states.
It makes money by charging its customers for using its network of pipelines and storage tanks. It makes money on the volume of oil and gas transported and stored in its network, so it’s more insulated than other energy companies that are affected by the ups and downs of commodity prices.
Better still, Energy Transfer LP has minimum volume requirements in its contracts. That means it’ll receive a minimum fee from each customer even if volumes fall, giving it more predictable cash flow than most other energy companies.
Total revenue jumped from $38.9 billion in 2020 to $67.4 billion in 2021. And the company has generated $44.3 billion in total revenue since July 2020. During that time, the company also brought its net income from a loss of $648 million in 2020 to a gain of $5.5 billion in 2021.
The company’s increasing revenues and income will enable the company to continue paying consistent dividends.
It currently yields 8.15%.
Forever Preferred Stock No. 6: Global Ship Lease Inc. 8.75% Series B Cumulative Redeemable Perpetual Preferred Shares (NYSE: GSL.PRB)
Global Ship Lease Inc. owns and charters containerships of various sizes under fixed-rate charters to container shipping companies.
Total revenue for the company has steadily increased since 2018. In 2020, the company generated $282.3 million. It increased revenues by 42.6% to $402.4 million in 2021. At the same time, the company’s net income rose 313% from $41.6 million in 2020 to $171.5 million in 2021
Its current yield is 8.61%.
The Cure for Stock Market Volatility
We believe that forever preferred stocks are the cure for stock market fears and volatility. While the other investors are biting their nails, worrying what the market will do days, weeks or months from now, you can sit back and collect your dividends with little to worry about except what you’re going to do with all this income – a problem anyone would like to have.
The six preferred stocks mentioned above have an average yield of 6.11%. And as we mentioned before, the power of reinvested income and compounded dividends will boost your annual dividend yield even higher.
Remember, these aren’t short-term picks. They’re long-term holds. And all of them should be able to maintain high dividend payments for the long haul.
Good investing,
The Liberty Through Wealth Research Team
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Updated 8/12/22