As the market braces for a potential shift in monetary policy, savvy investors are turning their attention to an often-overlooked asset class: preferred stocks.

With Federal Reserve Chair Jerome Powell signaling that “the time has come for policy to adjust” and fixed income markets anticipating a rate cut at the next FOMC meeting on September 18, a unique window of opportunity is opening for those in the know.

Today I’ll share with you my top three preferred stock ideas, and why preferred stocks make sense in this market.

The Untapped Potential of Preferred Stocks

Preferred stocks occupy a unique niche in the investment world, blending characteristics of both stocks and bonds.

These financial instruments offer investors a combination of steady income and potential capital appreciation, making them an attractive option in today’s volatile market.

Decoding Preferred Stocks: A Hybrid Investment Vehicle

Preferred stocks are a distinct class of equity that prioritizes the holder’s claim on company assets and earnings.

Unlike common stocks, preferred shares typically offer:

• Higher, more consistent dividend payments
• A superior claim on assets if the company faces liquidation
• Limited voting rights in corporate matters

The “preferred” status of these shares often comes with a callable feature, allowing the issuing company to repurchase the shares at a predetermined price after a specified date.

The Federal Reserve’s Pivot: A Golden Opportunity

It’s no secret.

The market expects the Federal Reserve to start lowering interest rates for the first time in years. This shift in policy creates a window of opportunity for investors to:

• Lock in high, tax-advantaged yields
• Potentially realize significant capital gains
• Invest in relatively safe, blue-chip companies

Lessons from History: The Resilience of Preferred Stocks During the 2008 Financial Crisis:

Even as the financial sector teetered on the brink of collapse, major banks maintained their preferred stock dividends while slashing common stock dividends.

This historical precedent underscores the relative security and reliability of preferred stocks, even in turbulent economic times.

The Trifecta of Benefits: Yield, Tax Advantages, and Capital Gains

Preferred stocks offer a compelling combination of benefits:

• High Yields: Currently offering between 5% and 6%, outpacing many other investment options
• Tax Efficiency: Often qualify for lower capital gains tax rates instead of higher income tax rates
• Capital Appreciation: With many trading below their call price of $25, there’s significant upside potential

Top Picks: Three Preferred Stocks to Watch

Our Catalyst Cashouts Live Portfolio is broken up into two parts, the main stock and options portfolio, and something we call The Super Income Portfolio.

And that’s where you’ll find many of the preferred stocks we invest in.

Here are the top 3 I like currently:

JP Morgan’s Powerhouse (JPM-K):

Full Symbol: JPMorgan Chase & Co. 4.55% Dep Shares Series JJ

• Current Yield: 5.2%
• Quarterly Dividend: $0.2843
• Callable: After June 2026
• Current Trading Price: Approximately $21.70
• Upside Potential: Over 20% based on $25 call price

JPM-K offers a solid 5.2% yield with dividends paid quarterly. The “K” in the symbol denotes it’s the 11th series of preferred stock issued by JPMorgan Chase.

With a call date after June 2026, investors have a longer runway for potential appreciation.

The current price of around $20.83 means there’s significant room for capital gains if the stock reaches its $25 call price.

This preferred stock combines the strength of JPMorgan Chase with an attractive yield and growth potential.

Bank of America’s Steady Performer (BAC-N):

Full Symbol: Bank of America Corp 4.375% Dep Shares Series LL

• Current Yield: 5.4%
• Quarterly Dividend: $0.3125
• Callable: September 2024
• Current Trading Price: Approximately $23.11
• Upside Potential: Approximately 10% -15% based on $25 call price

BAC-N provides a higher current yield of 5.4%. The “N” in the symbol indicates it’s the 14th series of preferred stock from Bank of America. With a nearer call date of September 2024, this stock may be attractive for investors seeking shorter-term opportunities.

Trading at around $21.74, it still offers a decent 15% potential capital gain. This preferred stock balances a strong yield with the financial stability of Bank of America.

Wells Fargo’s Yield Machine (WFC-Z):

Full Symbol: Wells Fargo & Company 4.75% Dep Shares Series Z

• Current Yield: 5.6%
• Quarterly Dividend: $0.2968
• Callable: March 2025
• Current Trading Price: Approximately $21.32
• Upside Potential: Approximately 20% based on $25 call price

WFC-Z boasts the highest yield among our picks at 5.6%. The “Z” denotes it as the 26th series of preferred stock issued by Wells Fargo.

With a call date in March 2025, it offers a medium-term holding period. Currently trading at about $20.83, it presents a substantial 20% potential capital gain.

This preferred stock combines Wells Fargo’s recovering reputation with an attractive yield and significant upside potential.

These preferred stocks offer a unique opportunity to secure high yields and potential capital gains in the current economic climate.

They provide a balance of income and growth potential that’s hard to find elsewhere in today’s market.

By understanding the nuances of each preferred stock symbol and its underlying characteristics, investors can make more informed decisions in their quest for yield and capital appreciation in the evolving economic landscape.

YOUR ACTION PLAN

A sound portfolio should be a balance of speculation and income generation.

If you’re seeking income, preferred stocks make a lot of sense in a rate cutting environment.

Not only do they offer attractive yields, but potential tax advantages with lower capital gains rates. In addition, there’s the possibility of capital appreciation as stocks approach the $25 call price.

If you need help finding generating ideas whether that’s growth stocks with the potential of quick gains or income producing stocks than you should check out Catalyst Cashouts Live.

With Catalyst Cashouts Live you get:

• Weekly live Q&A sessions where we break down the market and answer your burning questions
• Real-time trade alerts on short-term swing trading opportunities
• Our full portfolio of current positions, including our successful preferred stock picks
• Expert guidance on advanced strategies like LEAPs, put selling, and preferred stocks
• A community of like-minded traders ready to tackle this volatile market

Click here to find out how Catalyst Cashouts Live can potentially improve your trading and investing performance.

FUN FACT FRIDAY

Since 1929, the stock market has shown a remarkable tendency to rise after the Federal Reserve starts cutting interest rates.

In fact, the S&P 500 has posted positive returns 86% of the time in the 12 months following the first rate cut.

That’s like betting on sunshine in Hawaii – not guaranteed, but pretty darn likely!

However, just like a weather forecast, past performance doesn’t predict future results. The two times the market dipped after rate cuts were during the dot-com bubble burst and the 2008 financial crisis – reminding us that context is key when it comes to market reactions.