Since the Great Recession ended, preferred stocks have outperformed most other types of equity investments and are near 5-year highs.

 As the table shows the WIPSI significantly outperformed the Standard & Poors 500 Index in 2011, 2010 and 2009 and is still presenting investors with significantly higher dividend yields.

“While many investors feel that preferreds are an investment fad, I believe the rebirth of income investing is here to stay. Why? America’s aging population has lost much of its appetite for financial volatility and has chosen a fiscal course where investment income matters more than capital appreciation.

At Winans International, a key to our success in income investing is that we use mostly non-financial preferred stocks to enhance the overall performance of our client portfolios,” says Ken Winans President of Winans International and award-winning author of Preferred Stocks: The Art of Profitable Income Investing.

It is interesting to note that since 1900, preferred stocks have advanced annually 76% of the time, and have historically outperformed corporate bonds (7.6% vs. 6.5%). The Winans International Preferred Stock Index (symbol: WIPSI)™ is the only index that measures U.S. preferred stocks from 1900 to present.

EXCERPT: Preferred Stocks: The Art of Profitable Income Investing (pg 31-37)

Let’s look at the key mistakes made by income investors leading up to the 2008 financial meltdown:

Mistake 1: Income Investing Is Always Safe!

Unlike other investment mediums, income investors had fewer alternatives than in the past; the once ample supply of corporate bonds from exchanges and brokerage house inventories had “dried up.” For example, during 1988, 1,127 exchange-listed bond issues actively traded. By 2006, the number had dropped to 131 issues—an 88% decline in supply.

This scarcity of exchange-listed bonds coincided with an increase in the availability of other types of income investments, such as bond mutual funds, an assortment of new preferred stock issues, and bond hybrid securities inaccurately listed as preferred stocks in most newspapers. According to Standard & Poor’s, by 2006 the size of the preferred-stock market has quadrupled over 15 years to nearly $200 billion.

While equity income investments possess many advantages; they are not conventional bonds and don’t posses the greatest advantage of a fixed-income investment—a maturity date and the knowledge of an exact return, if the investment is held to maturity.

In the “old days,” many income investors constructed portfolios of mainly bonds diversified by issuer, industry, rating, and evenly spaced by year (i.e., laddered), with each investment intended to be held to maturity. During the horrible bond bear markets of the early 1980s and mid-1960s, investors could maintain their discipline because they knew that, even though solvent bond holdings had significantly fallen in market value, they would get their principal back, as well as their expected interest payments, if they held the bonds to maturity. Continue Reading…