Best Preferred Stocks to Buy: How We Outperformed the PFF ETF by 20x

Preferred stocks present one of the most attractive risk-adjusted income opportunities in current market conditions. With rates remaining at historically elevated levels, and fears of further hikes to combat inflation, this asset class remains discounted, despite being a steady source of income. Fixed income is the cornerstone of our strategy at High Dividend Opportunities. This segment of our portfolio comprises diversified funds that invest in this asset class, and individual preferred stock holdings.

What Are Preferred Stocks?

Preferred stocks are hybrid securities, with common stock and bond-like characteristics. They trade on the public exchanges like common stock, but are less volatile, and receive dividends at a higher priority over common shareholders. However, like bonds, they have fixed dividends and are sensitive to interest rate changes.

Our Preferred Stock Strategy.

While many investors rely on broad preferred stock ETFs like the iShares Preferred and Income Securities ETF (PFF), YTD, our portfolio has delivered a 10.4% total return (including dividends received).

Our strategy of investing in a diversified portfolio of individual preferreds has outperformed PFF by roughly 20x.

This outperformance wasn't the result of making one big lucky bet. It came from building a diversified collection of individual preferred securities across the triad of coupon, duration, and quality. 

We have high and low coupon issuances, fixed and rate-reset coupons, investment-grade and unrated securities, near-term and long-dated call structures, as well as perpetual and term preferreds. Together, they provide a balance that helps navigate interest rate risk, duration risk, and credit risk while continuing to generate attractive income and capital appreciation.

Let's look at two preferred stocks we're actively buying today.

1. Best Utility Preferred Stocks: Southern California Edison

   
   

Southern California Edison (SCE), the primary operating subsidiary of Edison International (EIX), a regulated utility company serving 15 million people across Southern, Central and Coastal California. EIX maintains an investment-grade balance sheet and offers several attractive preferred stocks for income investors.

SCE plans to invest $38-$41 billion through 2028 in transmission, grid modernization, and other infrastructure projects, supporting an expected 7% annual rate base growth through 2030. Management also reaffirmed its 2026 Core EPS guidance and long-term 5-7% annual earnings growth outlook.

Importantly, Fitch recently highlighted California's expanded wildfire legislation as a meaningful credit positive, noting that the new funding framework substantially improves protection against wildfire-related liabilities. This reinforces our long-held view that wildfire risks are largely mitigated through the state's recovery mechanisms.

EIX maintains a BBB investment-grade balance sheet, healthy liquidity, and comfortably covers both its common and preferred dividend obligations.

For income investors, the SCE preferred suite offers opportunities across the duration spectrum. 

Long duration and low coupon: SCE-G and SCE-L provide attractive long-term value, yielding around 7.4% with ~45% upside to par. 

Short duration and higher coupon: Investors seeking a higher likelihood of near-term redemption should consider SCE-M and SCE-N, offering yields of 7.8% and 7.5%, respectively, along with compelling yield-to-call.

2. Best High-Yield mREIT Preferred Stocks: Chimera Investment Corp.

   
   

Chimera Investment Corporation (CIM) has evolved beyond a traditional mortgage REIT into a vertically integrated mortgage platform following its acquisition of HomeXpress. Today, CIM generates earnings from mortgage originations, servicing, gain-on-sale income, investment management fees, and net interest income, creating a more diversified and resilient business model that is less dependent on interest rate movements.

The transformation is already producing results. HomeXpress increased origination volume by 39% YoY in Q1, while CIM grew earnings available for distribution to $0.54/share, comfortably covering its quarterly dividend. The company also maintains a strong liquidity position with $476 million in cash, $200 million of unencumbered assets, and $26.4 billion in assets under management.

Short duration, higher coupon, set maturity: Among the baby bonds, CIMP is our preferred choice, offering an 8.8% yield with lower call risk than others, and over 12 months until it becomes callable. 

High coupon, fixed rate: CIM-A provides a compelling 9.2% fixed yield.

Fixed-to-Float Rate: CIM-B and CIM-D offer ~10% yields through their fixed-to-floating structures, making them attractive if interest rates remain elevated or edge higher.

Security	Yield	Type	Why We Like It
SCE-G	7.40%	Preferred	Long-duration value with significant upside to par
SCE-M	7.80%	Preferred	Attractive yield-to-call with likely redemption
CIM-A	9.20%	Fixed-rate preferred	High current income with a fixed coupon
CIM-B	~10%	Fixed-to-floating preferred	Benefits if interest rates remain elevated
CIMP	8.80%	Baby bond	Defined maturity and lower call risk

The set of preferreds discussed today represent just two out of over 50 securities in our fixed income portfolio. We maintain exposure to different styles and strategies within this asset class, and this is our secret to index-beating returns and dependable income generation across economic shifts. Our fixed income portfolio is the beacon of stability in markets that are anything but. At High Dividend Opportunities, we believe successful investors are those who compound income and deliver attractive total returns through every stage of the market cycle.

Rather than relying solely on a broad preferred stock ETF, investors willing to build a diversified portfolio of individual preferred securities may position themselves for better prospects of income and total return. By combining different issuers, coupon structures, durations, and credit profiles, income investors can potentially generate more resilient performance across changing interest rate environments.

Navigate the markets with confidence

At High Dividend Opportunities, we do far more than stock picks. We help members navigate the ever-changing investment landscape by discussing Federal Reserve policy, interest-rate volatility, valuations, credit developments, preferred stock call risk, and earnings updates across hundreds of income securities. Our goal isn't simply to identify attractive yields today—it's to help investors understand the macroeconomic factors that drive tomorrow's returns, allowing them to build resilient portfolios that generate dependable income through every market environment.