S&P Report Documents (again) Why It’s Great To Be A Preferred Stock Investor

Standard & Poor’s has just reported the common stock dividend results for 2009 and it is very sobering. There are a number of reasons why people invest in preferred stocks, rather than common stocks, and S&P’s report reminds us of why it’s great to be a preferred stock investor (once again).

Companies issue two kinds of stock – (1) common stock and (2) preferred stock.

Whether or not a share of common stock pays you a dividend is up to the company’s board of directors and they review whether or not to do so every three months.

My research is focused on the highest quality preferred stocks – those that can meet the ten selection criteria found in chapter 7 of my book, Preferred Stock Investing. Two of the criteria that a regular preferred stock must meet are (1) that the dividend be for a fixed amount (usually well above that paid by the same company’s common stock) and cannot be changed by the board of directors or anyone else and (2) the dividend payments must be “cumulative” (meaning that in the odd event that the issuing company misses a dividend payment to you they have to make it up later; they still owe you the money).

Because of these differences (and several others) investors seeking lower risk are often more attracted to preferred, rather than common, stock investing.

Looking over the results of the 2009 common stock dividend performance from S&P makes it pretty clear why preferred stock investors have made the right call once again.

While the highest quality preferred stocks paid an average annual dividend return of 9.61% for 2009 (not to mention an average 97% capital gain on investor principal), Standard & Poor’s reported (click to see article) on Thursday that in 2009:

* the most common stock dividend cuts, and the fewest common stock dividend increases, since S&P started collecting this data in 1955; and

* the common stock dividend cuts cost investors $58 billion in lost dividend income.

Those investing in the highest quality preferred stocks throughout 2009 are not only now earning north of 9% in fixed dividend returns on their money, 100% of the dividends were paid on time and in full. There were no cancelations or cuts whatsoever; quite the opposite.

There are times in one’s life where taking tons of risk for a shot at the big bonanza can be very appealing. If you are in that boat, great. Knock yourself out.

But as America’s population ages, and more investors are less in a position to take risks with money they are counting on, the types of results offered by the highest quality preferred stocks, when compared to common stocks, are consistently compelling, year after year. 2009 was no exception.

Many Happy Returns.