Monday, August 02, 2010

How to Get a 4.9% Yield from Goldman Sachs or 6.7% from JP Morgan Chase

Let say that you are an income investor. You own plenty of utilities and plenty of high income stocks, but you want more diversification. And maybe you also want some inflation protection. Where do you turn?

How about Adjustable Rate Preferred Stocks, which hold a senior position to common shares and pay a dividend that usually has a minimum rate, but will also be adjusted upward if interest rates rise. There is no growth potential in these preferreds that you would normally get from common shares, but if you are investing for income and you have your inflation protection, what difference does it make. just came out with its list of adjustable rate preferred stocks, also known as ARPS, and lists several with great CD beating yields. A good example is the Goldman Sachs Group preferred D shares (GS-PD) (GS-D) with a $25 par value and minimum payout rate of 4.00% based on the par. The yield is based on the 3 month LIBOR + 0.75% and isn't callable until 5/24/2011. (The three month LIBOR is about 0.48%, so the adjustable rate wouldn't kick in until it gets up to about 3.25%. Because the stock is selling below $25, it provides a yield of 4.91%. If you by the Goldman Sachs (GS) common stock, you would only receive a yield of 0.9%.

Another ARP with an even higher yield is the J P Morgan Chase Capital preferred B (JPM-PB) (JPM-B) shares with a $25 par value. Payout is based on the 3 month LIBOR + 4.46%, however, it pays 7.2% until 12/22/2014, and at that time, would have no minimum. It does not qualify for 15% tax. The current yield is 6.76%. If you bought the JPMorgan Chase (JPM) common stock, you would just receive a yield of 0.5%.

If you want a list of about 20 adjustable rate preferreds, with yields ranging from 1.83% to 8.59%, go to

A couple different stock symbols are shown for the above preferreds because the symbol varies from brokerage firm to brokerage firm.

Author does not own any of the above.


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