tecmo,

There is a place for preferred shares in most portfolios, but you must understand that just like bonds, the market value of the shares has an inverse connection to interest rates. (When interest rates go up, the share price goes down, When rates go down, share prices go up) Most preferred share are perpetuals which means they never mature at par value. Today, with interest rates so low, they have only one way to go and that is up. Anyone holding long bonds and/or perpetual preferreds is in for some serious pain. But there are some preferred issues you can consider.

Look for resettable preferreds. They have a specific date when the dividend rates open for adjustment. Most of them it is every five years. They generally come with an option period where you can sell them at par. Alternatively, you may be given the option to continue to hold them at the new fixed rate or at a variable rate.

Another type to look for is a variable rate preferred. Their dividends are paid at a control rate (For example the GofC 10 year rate) plus a premium of say .5% or the like. Since they keep up with the changes in interest rates, they are not subject to the same market price fluctuations.

Still another type come with a specific maturity date. Since they have a definitive date they go back to par when the issuer must redeem them, they act the same as bonds but carry the benefit of dividend income rather than interest.

No matter what type of preferred stock you consider, you must calculate the yield to maturity to know what the real yield is. Don't pay any attention to the yield reported by Yahoo or Glob Investor. That is the cash distribution yield and has nothing to do with the real return. If you are serious about buying preferreds, send my an e-mail and I will provide you with some information on how to do those calculations using on-line calculators.

Cheers

Bob