In a market filled with highly speculative instruments such as cryptocurrencies, legendary investor Warren Buffet once again warned investors not to gamble away their financial future with the promises these investments offer. Buffet is not a fan of Bitcoin or any other cryptocurrency, likening them to gambling. Instead, preferred securities provide a reliable and predictable income stream, with big yields that will produce passive income for years.
According to Business Insider, Ben Graham noted that because of the inability to predict the future and fluctuations of the stock market, buying undervalued or out-of-favor securities is sure to provide a margin of safety for the investor. Preferred equity combines the best of both worlds for risk-averse investors in a market where prices of stocks and bonds have fallen due to the so-called “interest rate risk.”
Companies issuing preferred stocks have no maturity date, unlike bonds, so the principal does not require repayment. They can be redeemed anytime after the “call date” for the issue, and until this time, investors can collect regular dividend payments. These securities provide a reliable and predictable income stream and can be redeemed at a set par value of typically $25. If the underlying company continues to execute its business objectives, investors get paid for their patience. As the company improves its credit ratings and can borrow at lower costs, callable preferred stocks get redeemed, and if they were purchased below par, investors collect a capital upside.
As interest rates have risen, many preferreds are trading well below their par values, making them an excellent buy for long-term income needs. High Dividend Opportunities is maintaining a 40% fixed-income allocation, with a preferred portfolio that has positions in more than 45 individual preferreds and baby bonds, targeting an average yield of 8-9%.
SiriusPoint Ltd, an insurer with licenses to write Property & Casualty and Accident & Health insurance and reinsurance globally, has $2.9 billion in total capital, and its operating subsidiaries have a financial strength rating of A- from AM Best, S&P, and Fitch. Its 8% Resettable Fixed Rate Preference Shares (SPNT.PB) enjoys a generous 8% coupon, several structural protections, and features that make it quite a unique investment with an 8.7% qualified yield and 9% upside to par from this preferred with a rate-reset clause that almost guarantees redemption upon the call date.
Necessity Retail REIT Preferreds
The Necessity Retail REIT (RTL) calls itself the place “Where America Shops.” This REIT has a recession-resistant portfolio of primarily necessity-based tenants like discount retailers, auto repair stores, gas stations, and convenience stores. RTL maintains high occupancy rates and a healthy balance sheet, providing adequate coverage to the preferred dividends. RTL has two classes of preferreds sporting an attractive 9.3% yield and offering up to 25% upside to par value. Being perpetual preferreds, the company does not have an obligation to redeem these securities after the call date.
In conclusion, do not gamble away your financial future with the promises that highly speculative investments offer. Instead, invest in preferred stocks with big, predictable yields that will produce passive income for years. Securities that provide reliable and predictable income and can be redeemed at a set par value are an excellent and low-risk opportunity to supplement your investment portfolio.
According to https://seekingalpha.com/article/4601202-buffett-says-dont-gamble-with-bitcoin-2-preferreds-to-buy-instead
The material in this article is written on the basis of another article.