Preferred stocks can offer investors plenty of attractive income — and do so at a favorable tax rate — but they should proceed with caution before adding them to their portfolio. Preferred stocks are hybrid assets, combining attributes of bonds and equities, and their issuers include banks and utilities . They trade on exchanges just like stocks, but they also pay investors a quarterly stream of steady income.
"The calls are predominantly coming from bank issuers whose currently callable fixed-to-floating rate preferreds are now floating and resetting at relatively high rates, sometimes over 9%," wrote Frank Sileo, fixed income strategist in the chief investment office for the Americas at UBS, in a June 21 report. When individual securities are called, investors must hunt for a replacement.