How did I forget the exciting investment area of preferred stocks? (sarcasm). Preferred stocks are seen a mixture of stock and bond…debt and equity. They bring with them no voting power, as regular stocks do, but they give the holder first rights on dividend distribution. They are not typically bought for share price appreciation. If the company goes broke, you’re 2nd in line for claiming company assets, behind the bond holders.
If you’re looking for a dividend payout, preferred stocks might be a good option. The only problem is, if the dividend is not paid, you are left with a pretty worthless investment. To prevent getting in this bind, I would consider investing in an ETF that holds a bundle of preferred stocks. By diversification through an ETF, you can prevent being left out in the cold hold a preferred stock that isn’t paying a dividend. Take a look at iShares U.S. Preferred Stock Index (PFF).
If you decide to invest in individual preferred socks, then consider purchasing those that are convertible. Convertible preferred stocks can be converted into regular stocks after a certain time (or after other certain conditions occur). This provides you with greater flexibility and a way to get in on share price appreciation, if such an opportunity arises in the future.