You have come a long way throughout the Preferred Shares 101 Series (101, 102, 103, 104). From first learning the power of preferreds to potentially already buying some shares. But what is the long-term plan for purchasing and holding preferreds? Let’s get into it.
Capital Gains. We like to buy our preferreds when they are super cheap and have the highest yields. That is why we go shopping in the bargain bin. Many times, other investors are searching for preferreds the same way that you are. Once the shares are presenting a high dividend yield, they start to become very attractive.
As you can see from my GLOP.C example, people crave yield right now. Now, I can do some math. If I am receiving $46/year from GLOP.C, it will take roughly 2.5 years to earn the $138 I can get from selling today.
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Do I sell, or do I hold? The question comes down to a personal preference. I am going to keep it because I love getting my $11.50 dividend payment every three months. GLOP.C could be paying me for another ten years. If it does get called in a few years, they will pay me $25 for each share. That is why preferreds are so amazing; you can leverage different aspects to get the best performance.
Also, if I sell, I will have to go on the hunt again for more preferreds. Finding shares that fit into my payment schedules and yield requirements can be tedious. I love where I am now. If prices go down a little, I am going to double down and buy more.
Dividends. If you conduct your research correctly, you should be getting substantial dividend yields on your preferreds. For me, this control is the main reason to buy preferreds. Preferred Shares have a limited upside compared to their common stock brethren; however, you can better control the amount of yield you can juice from them.
For the most part, I buy and hold. It takes a lot of time to find the preferreds that are good for your portfolio. You may also take on some risks to get the highest yields. I never heard of GLOP.C before coming across it during my research.
I like to look at the big picture. Overall I have $352 of my own money in GLOP.C. They have already paid me $15, so my total out of pocket is $337. Out of my entire $150,000 portfolio, GLOP.C accounts for roughly 0.002%. If it blows up in my face, it can live with that.
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Watching GLOP.C perform this well has been one highlight on my dividend journey. I did the research, took a chance, and it has paid off. I can’t wait to do it again when I find the time.
I recommend taking a big picture view. People are often trying to protect their money so much that they miss great deals or don’t take a chance. I am not saying go out there and start gambling, no, but do your research and go with your gut.
You don’t protect your money by putting it in the stock market. You save your money by diversifying outside of the stock market. Any money on the stock market is subject to the whim of the market on any particular day.
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The investments aren’t risky; the investor is risky. When you invest in preferreds, you will probably not have heard of most companies. That is where you have to conduct research, build your confidence in the product, and make a buying decision.
You don’t have to spend crazy amounts of money—I didn’t buy a ton of GLOP.C upfront, only 3-4 shares and watched how it performed. Then I bought more until I got a position that I was comfortable holding.
As you can see above, I have enough money off of the stock market to be comfortable. I also have real estate investments and book royalties. Of course, I still have a job, as does my wife. So in the big picture, I have enough life diversity to make buying decisions with my preferred shares.
My long-term strategy is to shop for preferred shares roughly once a year. Once I find some decent-looking shares, I conduct research and make a buying decision when they have a high enough yield. I purchase and continue to watch and build a more prominent position, if so warranted.
I ensure that I am not jeopardizing myself or my portfolio by getting greedy. As much as I love high-yielding products, I have to balance everything with the whole life concept. What do I mean by this?
First, when I receive some cash flow, I look at everything going on in real life. Let’s say I receive $800 from one of my roommates. I first ask my wife to see what she has going on. If she doesn’t need it, then I look at my life. If I don’t have any pressing real-world requirements, I know that I can invest in the stock market.
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Now, I have five different brokerage accounts, all with their own particular objectives and needs. I invest in preferreds in my Wells Fargo brokerage because they have the best income calendar in the business.
Now, I have $800 to spend inside Wells Fargo. I look across my stocks, ETFs, and closed-end funds and see if anything has a reasonable price. Right now, everything is priced super high. The stock market is through the roof currently.
However, waiting on the sidelines is not an option for me; I believe that asset prices will continue to go up, so I have to make a buying decision. Looking around, I decide to spend $300 on preferreds, $250 on VTI (total stock market), and $250 on PCI (closed-end funds).
This particular mix gives me capital appreciation in the form of VTI, some solid yield with my preferred, and monthly income from PCI. This strategy is how I perform all my buying. Trust me, when I first got into the stock market, I wasn’t so diversified, and I got burned bad.
Well, that about wraps up my strategy. Always look at the big picture, and you will be fine. Searching for preferreds can be very exciting, and chasing yield can be fun as well. But beware of yield traps. Buying products because they have a high yield can be very risky. You have to find a strategy that doesn’t get you into trouble.
Take your time, conduct good research, ease into a good position, monitor over time, and continue to buy if you like the results. If you do this, you will find great success with preferred shares. Good Luck on your hunt!
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Disclosure: I am not a financial advisor or money manager, and any knowledge is given as guidance and not direct actionable investment advice. I am an Amazon Affiliate. Please research any investment vehicles that are being considered. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
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