Considering Bond Alternatives: Preferred Stocks and Utilities
Higher income and likely better returns, but with greater risk.
Friday’s column questioning whether high-quality bonds should still be used with equities to form balanced funds, given how far bond yields have fallen, sparked many responses. Among them were multiple recommendations for two investments that currently generate higher income than government bonds: 1) preferred stocks and 2) utilities stocks.
Today’s article addresses that topic. I treat the two assets in one column because they are largely similar. Each are hybrid securities, offering higher income than conventional stocks while retaining equitylike characteristics. Preferred stocks accomplish that task by being, effectively, a flavor of junk bond, while utilities stocks do so by being full-blown equities, but issued from a sedate sector.)