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Income From Stocks: Preferred Securities And Selling Stock Options

Monday, September 19, 2011 - 4:49 AM
The author of this WSJ Alternative Investing Strategies article answers two readers' questions. The last question should be of interest to conservative investors. It asks how an equity portfolio can generate income without depending on dividend stocks. The two methods discussed are preferred securities and selling stock options. Below are some excerpts from the article:
"Investors should think of preferreds as somewhere between a stock and a bond," says Mitch Schlesinger, chief investment officer of FBB Capital Partners. "They trade on an exchange the way stocks do, but the dividends are generally quite high, like those from long-maturity bonds," he says.
 There are also ETFs and mutual funds that hold these securities, such as iShares S&P U.S. Preferred Stock.
Another way to generate cash from a stock portfolio: Sell stock options. Options give an owner the right, though not the obligation, to buy shares at a specified price at some point in the future.

Ken TuminKen Tumin5,442 posts since
Nov 29, 2009
Rep Points: 123,687
1. Monday, September 19, 2011 - 6:55 AM
While it is true that preferred stocks offer attractive yields and are usually less volatile than common stocks, they are not for the faint of heart. The iShares fund (PFF) dropped substantially more than the S&P 500 in 2008, and even as recently as last month had a slightly sharper drop than the S&P 500.
WilWil242 posts since
Feb 26, 2010
Rep Points: 1,281