Investing in Preferreds
The Peak and Roll of Preferreds: Preferreds today promise 8% to 9%. These are NYSE listed blue-chip securities. In order to cash in on preferreds, you need to understand the concept of peak and roll. Let’s say that over three years of a preferred’s existence, its price has risen to $27/share from it’s original offering price of $25. The price of the preferred has risen because interest rates have declined. If the preferred is callable at five years, at some point between year three and year five, the price of the preferred will peak and begin to roll down back toward $25. Don’t hang around for the complete peak and roll. When the stock hits a peak sell and buy a new five year preferred. Your return is then 9% + 2.6% from the $2.