Register
Login:
Share:
Email Facebook Twitter




Stock Market news at lse.co.uk - RSS News Feeds

Lloyds Banking Group Share News (LLOY)



Share News for Lloyds Banking Group (LLOY)


Share Price: 80.94Bid: 80.94Ask: 80.95Change: 1.07 (+1.34%)Riser - Lloyds Grp.
Spread: 0.01Spread as %: 0.01%Open: 80.00High: 81.12Low: 79.73Yesterday’s Close: 79.87




COLUMN-Preferred stocks still make sense for yield

Tue, 20th Aug 2013 12:59

By John Wasik

CHICAGO, Aug 20 (Reuters) - Frustrated yield seekers have been drawn to preferred stocks because they offer a several-point yield advantage over most U.S. investment grade bonds, including Treasuries, corporates and municipal bonds.

But these quasi-stock, quasi-bond investments act like bonds when interest rates rise: They fall in value. That has brought them some negative attention in the last few months. Preferred stocks declined in value as investors scrambled to find higher-yielding vehicles when rates rose. They may now may be oversold and offer some bargains.

Preferreds straddle a territory between common stocks and bonds. Mostly issued by financial companies, preferred stocks confer no voting rights, but represent a higher claim on earnings than common stocks, and are less volatile.

They also best the stock market's dividend yield by a hefty amount: The Standard & Poor's 500 stock index has a 2.01 percent dividend yield, while an exchange traded fund that holds the preferred shares of the same companies is yielding 5.78 percent.

In the event of a company's liquidation, preferred stockholders are second in line for corporate assets, behind bond investors. Buying a pool of preferreds through exchange-traded funds can help you mitigate that risk.

The largest preferred-stock exchange-traded fund - the $10 billion iShares S&P Preferred Stock Index - lost nearly 7 percent in the three months through Aug. 16. It charges 0.48 percent annually for management expenses, and holds shares from megabanks such as Barclays Bank plc, Citigroup and Wells Fargo & Co.

Due to its nearly 6 percent yield, the iShares fund still keeps you slightly ahead of the bond market's recent volatility. It's up 0.25 percent over the 12 months through Aug. 16. By comparison, the Barclays U.S. Aggregate Bond Total Return Index, a benchmark for the U.S. bond market, which is down nearly 2 percent.

"The main issue with preferred stocks is interest-rate risk," says Eric Dutram, an analyst with Zacks Investment Research in Chicago. "There's no way around it."

MORE DIVERSIFIED ALTERNATIVES

Still, it's vexing to see a high-yield stock track the bond market. In a perfect world, that wouldn't happen and a preferred stock would offer a diversified option to high-yield bonds.

One way to sidestep some of the volatility is to invest in preferreds outside of U.S. financial services, which have been soaring over the past year. The sector has rebounded strongly from the post-2008 selloff and is up more than 32 percent in the 12 months ending Aug. 16, but may have run its course.

A worthy option is the Global X SuperIncome Preferred ETF , which holds non-U.S. companies such as HSBC Holdings, plc, Royal Bank of Scotland Group plc and Lloyds Banking Group plc. The fund is up almost 4 percent for the 12 months through Aug. 16 and yields nearly 7 percent. It also costs more to manage: 0.65 percent annually.

Keep in mind that preferreds have yet another advantage that somewhat offsets their close correlation to bonds: They are less volatile than common stocks. When the S&P 500 fell 37 percent in 2008, for example, the iShares preferred fund fell only 24 percent.

That doesn't mean you should gorge on the high yields that preferreds offer and abandon common stocks. Preferred funds are heavily concentrated in the financial sector, which adds another layer of diversification risk. You can always buy individual preferred issues, but they are complicated to analyze, so you may want to use an experienced adviser who knows how to buy them at a good price.

You'll still need to balance out the income side of your portfolio with vehicles such as municipal, government and corporate bonds and real estate investment trusts.

Every one of these investments can lose value in a rising-rate environment, so they may still hold some nasty surprises if the economy keeps heating up and the Federal Reserve starts to back off its monetary easing policy.



(c) Copyright Thomson Reuters 2013. Click For Restrictions - http://about.reuters.com/fulllegal.asp







UPDATE 2-Virgin Money profit more than doubles as mortgages rise

(Adds share price)March 5 (Reuters) - Virgin Money Holdings (UK) Plc, one of many smaller banks seeking to challenge Britain's big four lenders, said
[15 Hours Ago]

UPDATE 1-Virgin Money profit more than doubles as mortgages rise

(Adds details)March 5 (Reuters) - Virgin Money Holdings (UK) Plc, one of many smaller banks seeking to challenge Britain's big four lenders, said its
[15 Hours Ago]

UPDATE 2-Oil producer Afren defaults on 2016 bonds, shares fall

(Adds details, share movement, short interest data)By Roshni MenonMarch 4 (Reuters) - Oil producer Afren Plc has defaulted on its 2016 bonds, missing
[Yesterday 15:27]

UPDATE 1-UK to introduce new senior banker vetting rules from March 2016

(Adds detail, background)By Huw JonesLONDON, March 3 (Reuters) - Britain's new rules for vetting and making senior bankers directly accountable for th
[Tue 15:00]

UK to introduce new banker vetting rules from March 2016

LONDON, March 3 (Reuters) - Britain's new rules for vetting and making senior bankers directly accountable for their actions will take effect from Mar
[Tue 13:55]

REFILE-UPDATE 4-Britain's Lloyds to pay first dividend since rescue

(Refiles to remove stray words in seventh paragraph)* Bank to pay dividend of 0.75 pence per share* CEO says payout will help government sell shares*
[Fri 17:43]

UPDATE 4-Britain's Lloyds to pay first dividend since rescue

* Bank to pay dividend of 0.75 pence per share* CEO says payout will help government sell shares* 2014 underlying profit 7.8 bln stg vs 6.2 bln* CEO h
[Fri 16:39]

UPDATE 1-Bank of England turns up the heat on accounting firms

(Adds more detail, industry reaction)By Huw JonesLONDON, Feb 27 (Reuters) - The Bank of England would have the power to fine or ban accounting firms f
[Fri 14:55]



Sign up for Live Prices
Home  |  Contact Us  |  About Us  |  Careers  |  Advertise with Us  |  Sitemap  |  Terms & Conditions  |  Cookies  |  Privacy


Datafeed and UK data supplied by NBTrader and Digital Look. While London South East do their best to maintain the high quality of the information displayed on this site,
we cannot be held responsible for any loss due to incorrect information found here. All information is provided free of charge, 'as-is', and you use it at your own risk.
The contents of all 'Chat' messages should not be construed as advice and represent the opinions of the authors, not those of London South East Limited, or its affiliates.
London South East does not authorise or approve this content, and reserves the right to remove items at its discretion.