Investors searching for steady income in 2025 are turning to preferred stocks as high-yield savings accounts and money-market funds no longer deliver the attractive 5% yields seen in 2023 and 2024. With the Federal Reserve cutting interest rates three times since September, preferred stocks now offer a compelling 6.9% dividend yield through the S&P U.S. Preferred Stock Index. These hybrid securities, commonly issued by banks, utilities and real estate investment trusts at a $25 face value, provide regular dividend payments without a maturity date.
Market experts believe preferred stocks present an opportunity for income-seeking investors willing to navigate current market conditions. According to Ken Winans, founder of Winans Investments, preferred stocks from major banks offer competitive yields compared to riskier alternatives like emerging-market debt or private equity debt. The asset class has underperformed recently, with the preferred stock index declining 1.1% in price this year while investment-grade corporate bonds gained 7.1%.
Why Preferred Stocks Look Attractive Now
The unusual pricing dynamics stem from preferred stocks’ sensitivity to long-term interest rates, which have remained elevated despite Fed rate cuts. The 30-year Treasury yield currently sits at 4.84%, higher than at the start of the year. This disconnect has created a situation where preferred stock yields resemble high-yield bonds rather than investment-grade corporates, according to market observers.
Elaine Zaharis-Nikas, head of fixed income and preferred securities at Cohen & Steers, notes that preferreds offer comparable income to high-yield bonds while providing materially higher credit quality. This combination appears particularly valuable given ongoing economic uncertainty. The asset class offers what some experts call hidden treasure for patient investors willing to accept some price volatility.
Finding Bargains in Preferred Stock Markets
Industry analysts have identified specific opportunities among preferred stocks trading below their par values. According to Adam Menzel and Benjamin Nobel of Preferred Stock Alerts, their bargain table lists 141 different issues yielding at least 5% while meeting strict quality criteria. These requirements include five years of call protection and investment-grade credit ratings from agencies like Moody’s, Fitch or S&P Global.
California-based Public Storage exemplifies the opportunity. The company’s Series S preferred stock, issued in January 2022 with a 4.1% dividend, has declined from its $25 par value to $16.38 per share as rates rose. This decline has pushed its current yield to 6.3%. Nobel describes these securities as similar to call options on lower future interest rates, offering both steady income and capital appreciation potential.
Bank Preferred Stocks Offer Quality and Yield
Financial sector preferreds dominate the market, representing 69% of the S&P preferred stock index. Martin Fridson, CEO of Income Securities Advisors, highlights a Bank of New York Mellon preferred stock issued this year with a 6.15% coupon. The bank’s high credit quality, supported by stable fee-based earnings rather than deposit dependence, reduces risk for investors.
Additionally, Fridson recommends UMB Financial preferred shares yielding 7.2% for moderate-risk investors. For those accepting higher risk, Merchants Bancorp offers an 8.1% yield. The Indiana-based bank’s diversified earnings from traditional banking, multifamily mortgage lending and warehouse lending distinguish it from troubled regional banks, according to the report.
Beyond Banking: Diversification Opportunities
However, opportunities extend beyond financial institutions. Winans favors real estate companies like Vornado Realty and Annaly Mortgage, energy firms including DTE and NGL Energy Partners, and established corporations like Ford, which offers several preferreds yielding above 7%. He views diversification outside the banking sector as prudent despite the financial industry’s dominance.
Most preferred stocks include attractive features beyond yield. Qualified dividend tax treatment applies to many issues, taxing distributions at long-term capital gains rates rather than higher ordinary income rates. Meanwhile, cumulative dividend provisions require companies to pay any missed dividends to preferred shareholders before distributing payments to common stockholders, offering downside protection during economic stress.
Investment Outlook and Considerations
Market participants remain divided on whether current pricing reflects fair value or opportunity. Winans argues that preferred stock prices appear disconnected from fundamentals given the Fed’s monetary policy trajectory and controlled inflation. He has shifted portfolio allocations from corporate bonds toward preferred stocks, expecting continued rate cuts to benefit the asset class.
The performance of preferred stocks will likely depend on the trajectory of long-term interest rates and economic conditions in coming months. Investors should monitor Fed policy decisions and corporate earnings reports from major preferred stock issuers, particularly in the banking and real estate sectors, to assess whether current yields justify the risks.
