Destra Insights

Inflation has been the talk of the town lately. With the increased vaccination rates in the US and the resulting reduction in Covid cases, the US economy has shown signs of a strong reopening move to start the year.

Over half of the preferred securities market is eligible for QDI treatment today. Utilizing QDI eligible preferred securities has the potential to enhance after tax income and total return which can be a very under-appreciated benefit of investing in preferred securities. To learn more about the tax advantages of QDI, please watch the below video.

Preferreds offer investors a number of different potential benefits. Read about the 3 most important ones.

After significantly underperforming their fixed-rate counterparts during the first half of 2020, fixed-float preferreds have nearly closed the gap, particularly with a strong fourth quarter showing.

Preferred stocks may offer potential tax advantages for investors, with high current income both before and after taxes. Preferreds can offer this due to the fact that many of them qualify as being QDI1-eligible. This means that their dividends are taxed at the dividend tax rate, not as ordinary income.

When searching for consistent yield and income, many investors turn to well known asset classes like dividend producing equities, government bonds and municipal bonds. Investors may be well served by also considering preferreds, when looking for stable, higher yields.

On June 25, the Federal Reserve released its 2020 large-bank Stress Test results. For the most part, they were as expected given the severity of the current healthcare crisis and global economic slowdown.

A brief update on the preferred securities market from the team at Flaherty & Crumrine, Incorporated.

What is the difference between preferred and common stock? Preferreds are hybrid securities that blend unique characteristics of both stocks and bonds. This hybrid structure was first introduced in the U.S. by the State of Maryland in 1836 as a solution to fund their local railroad and canal companies. Over time, this structure has evolved and today is a unique hybrid that blends the following unique characteristics.

To understand the potential attractiveness of preferreds, we are going to “take a ride on the B&O Railroad”. Looking back at history may help us gain an understanding of why preferred stocks have been used for nearly two centuries by the wealthy and institutions alike as an attractive alternative and compliment to stocks and bonds, within a well-diversified portfolio.