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Why they matter
Preferred shares sit between bonds and common stock - they’re prized for steady dividends, relatively stable prices, and preferential treatment over common shares in payouts. Unlike bonds, though, they generally don’t mature. Some even shift from fixed to floating rates after a set period.

Getting in and out efficiently
Liquidity can be thin. Limit orders (never market orders) are your best friend, and stop-losses are a trap. Smart traders target buy lows and sell highs - say, near or just above the $25 call value - while hedging against being walked over by the issuer calling the shares.

Managing total return
Your money makes its return through two paths: dividends and price moves. Entry price is everything - cut it fine, and your yield outpaces risk. Splitting risk between these paths puts you ahead over time.

Key risk zones
Be aware of pitfalls:

• Credit or accounting disasters
• Rate shifts that hurt bond-like securities
• Call risk that caps upside
• Poor decisions from trader error

Vigilance and solid due diligence are your best defense.

Why stability wins
Dividends typically stay constant unless the issuer cancels its common dividend first. Preferred shares tend to bounce back from rate swings more reliably than common stocks - especially when they carry quality credit backing.

Beating ETFs at their own game
Preferred share ETFs like PFF are broadly diversified, but carry higher costs and include lower-quality share classes. Picking individual, quality preferred shares can deliver stronger performance with no management drag.

Tactics that matter: dividend capture and swapping

• Dividend capture: Buy just before ex-div date, hold through it, then sell.
• Swapping within the same REIT: If one series softens relative to another, shift.

Fight the fear of rates
Preferred shares dip when Treasury yields spike, but tend to recover. Even at higher rates, their yields often remain superior. Some preferred shares with floating rates also offer better inflation resistance.

Keep perspective
Total returns are what count - not dividend alone, not price shifts alone. And always keep a benchmark (like PFF) handy to see whether you’re outperforming or just riding the tide.

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This article was compiled by my assistant. If there are any mistakes, blame him - I certainly will.

Disclosure: I may frequently trade in the preferred shares of any mortgage REIT and occasionally in the common shares.