Best Preferred Stocks to Buy in 2026
From Someone Who Owns 26 Series
Most “best preferred stocks” articles are written by people who do not own preferred stocks. This one is different. I hold 26 series of junior preferred stock across Fannie Mae and Freddie Mac. Here is what I own, why I own it, and how I think about preferred stock investing.
26
Series Held
2
GSE Issuers
12+
Years Holding
$25
Par Value Target
Full Disclosure
I own 26 series of Fannie Mae and Freddie Mac junior preferred stock. I have owned them since 2013. This page describes what I own and why I own it. It is not financial advice, it is not a recommendation, and I am not telling you to buy anything. I am a guy on the internet sharing his portfolio. Do your own research. If you lose money, that is on you.
What Makes a Preferred Stock Worth Buying
Before I show you what I own, here is how I think about what makes a preferred stock attractive.
Par Value
The face value you are owed — typically $25 or $50 per share. When a preferred trades below par, you have a margin of safety. When it trades above par, you are exposed to call risk. I only buy below par.
Yield / Coupon Rate
The annual dividend as a percentage of par value. A 6% coupon on $25 par pays $1.50/year. But the yield that matters is what you earn at your purchase price, not par.
Credit Quality
The issuer's ability to pay. Investment-grade issuers rarely suspend preferred dividends. Below-investment-grade issuers offer higher yields to compensate for real risk. Know where your issuer stands.
Call Protection
How long until the issuer can redeem (call) your shares at par. Longer call protection means more time to collect dividends. Shorter call protection limits your upside if you bought at a discount.
Cumulative Dividends
If the issuer misses a payment, cumulative preferreds stack up the debt. Non-cumulative preferreds let the issuer skip payments with no obligation to make them up. I only buy cumulative.
Seniority
Where you stand in the capital structure. Senior preferred gets paid before junior preferred. Both get paid before common. All preferred is junior to bonds and bank debt.
My Fannie Mae Preferred Holdings
5 SeriesFannie Mae (OTCQB) junior preferred stock. All cumulative. All trading at steep discounts to par. Dividends suspended since 2008.
The flagship. Highest fixed coupon among Fannie preferreds — 8.25% on $25 par means $2.0625/year when dividends resume. Massive accumulated arrearages.
Fixed-to-floating structure that flips to 3-month LIBOR + spread after call date. In a high-rate environment, the floating component becomes attractive.
Similar float mechanics to FNMFN. Diversifies rate exposure within the Fannie stack.
One of the higher-par Fannie series. Same credit, different math — $50 par means bigger dollar payout per share when dividends are restored.
Variable-rate series tied to benchmark rates. Offers natural inflation protection within the GSE preferred stack.
My Freddie Mac Preferred Holdings
15 SeriesFreddie Mac (OTCQB) junior preferred stock. All cumulative. Same conservatorship thesis, different tickers. I own more Freddie series than Fannie because Freddie issued more of them.
Variable-rate Freddie preferred. When rates are elevated, this one earns its keep. Same conservatorship story, different rate structure.
Lowest fixed coupon in the stack, which means it typically trades at the widest discount to par. More upside on a recapitalization, less income while you wait.
Another variable-rate series. Rate sensitivity works both ways — pays more when rates rise, less when they fall.
Variable-rate with similar mechanics to Series G. Slight structural differences in rate reset timing.
Part of the variable-rate block. Diversification within the Freddie stack means no single series dominates the portfolio.
Clean 5% fixed coupon. Middle of the road on yield, solid on simplicity. $1.25/year per share when dividends come back.
Variable-rate. Freddie issued a lot of variable preferreds, and I own most of them. Diversification across rate structures.
Fixed-rate with a decent coupon. $1.4525/year per share. One of the stronger fixed-income plays in the Freddie stack.
Variable-rate. I collect these like trading cards. Each one is a claim on Freddie Mac's future profitability.
Variable-rate series. Part of the broader thesis that all junior preferreds get made whole in recapitalization.
Another variable-rate Freddie preferred. The recapitalization thesis doesn't care about the coupon — it cares about par value recovery.
Higher-par Freddie series. $50 par means each share represents a bigger claim in recapitalization. Less liquid but more concentrated exposure.
Variable-rate at $50 par. Same thesis, bigger notional per share. Slightly wider bid-ask spreads due to lower retail interest.
Fixed 6.02% coupon on $50 par — that is $3.01/year per share. One of the highest dollar-payout Freddie preferreds when dividends are restored.
Get Glen's Musings
Occasional thoughts on AI, Claude, investing, and building things. Free. No spam.
Unsubscribe anytime. I respect your inbox more than Congress respects property rights.
Beyond GSE Preferreds
I am concentrated in Fannie and Freddie. That is my thesis. But the preferred stock universe is much bigger. Here are the major categories that other investors focus on. I do not personally own any of these, but I respect the strategies.
Bank Preferreds
5.5% – 6.5%Examples: JPM, BAC, WFC, C series
Investment-grade credit, usually non-cumulative. The safest corner of the preferred market. I do not own any because the GSE risk/reward is better for my thesis, but they are solid income plays.
Utility Preferreds
5.0% – 6.0%Examples: DUK, NEE, SO series
Regulated utilities with predictable cash flows. Lower yields reflect lower risk. Good for investors who want steady income and can sleep at night.
REIT Preferreds
7.0% – 9.0%Examples: NLY, AGNC, ARR series
Higher yields but more volatile. Mortgage REITs in particular can be whipsawed by interest rate moves. Dividends taxed as ordinary income, which eats into the yield advantage.
Energy / Pipeline Preferreds
6.5% – 8.5%Examples: ET, EPD, KMI series
Tied to energy cash flows. Can be attractive during commodity upcycles but carry commodity price risk. Some are structured as LP units with K-1 tax complexity.
How to Evaluate a Preferred Stock
My five-step process. It is not complicated, but most people skip at least two of these steps.
Know the Coupon and Par Value
The coupon rate multiplied by par value gives you the annual dividend. A 6% coupon on $25 par pays $1.50/year. A 6% coupon on $50 par pays $3.00/year. This sounds obvious, but I have met people who buy preferred stocks without knowing what they are owed.
Check Cumulative vs. Non-Cumulative
Cumulative means missed dividends stack up and must be paid before common shareholders see a dime. Non-cumulative means missed payments vanish forever. Every GSE preferred I own is cumulative — that is non-negotiable for me. Years of accumulated unpaid dividends represent real money.
Calculate Your Yield at Current Price
Current yield = annual dividend / price you pay. If you buy a $25 par preferred with a 6% coupon ($1.50/year) at $15, your current yield is 10%. But if dividends are suspended, your current yield is 0% until they resume. Know the difference between theoretical yield and actual cash flow.
Assess the Credit and the Thesis
For standard preferreds, check the issuer's credit rating. For GSE preferreds, the credit analysis is different — you are betting on a political and legal outcome. Understand what you are buying and why the market is pricing it where it is. If you cannot articulate the thesis, you should not own the position.
Understand Call Risk and Liquidity
If a preferred trades above par and the call date is near, you are exposed to capital loss when the issuer redeems at par. Also check average daily volume — thin preferreds can have $0.50+ bid-ask spreads, which erodes your yield. I have been stuck in positions where I could not exit cleanly. It is not fun.
Risks You Need to Understand
I would be a fraud if I told you about the upside without being honest about the downside. Preferred stocks are not risk-free. These are the risks I think about.
Dividend Suspension
Issuers can suspend preferred dividends — it has happened to me. Fannie and Freddie preferred dividends have been suspended since 2008. Cumulative preferreds accumulate the debt, but you still get zero cash while you wait. Be honest about your cash flow needs.
Interest Rate Sensitivity
Preferred stock prices move inversely with interest rates, just like bonds. When the 10-year Treasury yield rises, your $25 par preferred stock might trade at $18. You are whole on paper if you hold to redemption, but the mark-to-market can be brutal.
Call Risk
Issuers can redeem callable preferreds at par, usually after 5 years. If you bought at $27, you get $25 back — a $2 loss on top of whatever dividends you collected. Never overpay for a callable preferred without doing the yield-to-call math.
Dilution
In restructurings or recapitalizations, preferred stock can be diluted, converted, or restructured on terms you do not love. This is a real risk for GSE preferreds — the government could propose a recapitalization plan that haircuts preferred shareholders.
Illiquidity
Many preferred stocks trade with low daily volume. In a panic, you might not be able to sell at anything close to fair value. I have watched bid-ask spreads blow out to $1+ on some of my positions. Liquidity is something you have until you need it.
Subordination in Bankruptcy
Preferred shareholders are senior to common but junior to all debt — bonds, bank loans, and secured creditors get paid first. In a bankruptcy, preferred recovery rates are historically low. For the GSEs, outright bankruptcy is nearly impossible given the government backstop, but the risk exists for every other issuer.
Frequently Asked Questions
Are preferred stocks safe?
Safer than common stocks, riskier than bonds. Preferred shareholders get paid before common shareholders in liquidation and for dividends, but they are subordinate to all debt holders. The safety depends entirely on the issuer. An investment-grade bank preferred is much safer than a small-cap REIT preferred. And nothing is safe if you overpay — buying a preferred at $30 with a $25 par value means you are guaranteed to lose money if it gets called.
What is a good preferred stock yield?
In 2026, a good fixed-rate preferred yield is typically 5.5% to 7.5% for investment-grade issuers. Below-investment-grade preferreds can yield 8% to 12%+, but the higher yield compensates for real credit risk. For GSE preferreds specifically, the current yield calculation is theoretical since dividends are suspended — the real return comes from the recapitalization thesis and recovery to par value.
Can preferred stocks lose value?
Absolutely. Preferred stocks lose value when interest rates rise (just like bonds), when the issuer's credit deteriorates, during broad market selloffs, or when dividend payments are suspended. I have personally watched my GSE preferred positions drop 50%+ during periods of political uncertainty. They are not immune to drawdowns. The key is understanding whether the decline is temporary or permanent.
How are preferred stock dividends taxed?
Most preferred stock dividends qualify for the lower qualified dividend tax rate — 0%, 15%, or 20% depending on your income bracket. This is a major advantage over bond interest, which is taxed as ordinary income. However, REIT preferred dividends are generally taxed as ordinary income, and some preferred dividends from financial institutions may not qualify. Always verify the tax treatment with your broker or tax advisor before buying.
What happens to preferred stock in bankruptcy?
In bankruptcy, preferred shareholders are paid after all creditors (bondholders, bank loans, trade creditors) but before common shareholders. Historically, preferred recovery rates in bankruptcy are low — often 10 to 30 cents on the dollar. This is why credit quality matters so much. For the GSEs specifically, outright bankruptcy is essentially impossible due to the government conservatorship and implicit guarantee, which is part of why the preferred stock thesis exists.
Should I buy Fannie Mae or Freddie Mac preferred stock?
That depends on your risk tolerance and conviction in the recapitalization thesis. GSE preferreds are not normal preferred stocks — they are a bet on a political and legal outcome. Dividends have been suspended since 2008 and the shares trade at significant discounts to par. If recapitalization happens on favorable terms, the returns could be extraordinary. If it does not, or if the terms haircut preferred shareholders, you could lose money. I own 26 series because I believe in the thesis, but I have been waiting over a decade. This is not a trade — it is a conviction position.
Get Glen's Musings
Occasional thoughts on AI, Claude, investing, and building things. Free. No spam.
Unsubscribe anytime. I respect your inbox more than Congress respects property rights.
Know someone who invests in preferred stocks?
Keep Exploring
Preferred Stocks Guide
The complete guide to preferred stock types, yields, risks, and how to build a portfolio.
Read moreTutorialHow to Buy Preferred Stock
Step-by-step guide to buying preferred stocks through any brokerage account.
Read moreMust ReadFannie & Freddie Guide
The full story on the GSEs — conservatorship, Net Worth Sweep, and the path to recapitalization.
Read moreDataTrading Analysis
2,068 trades parsed from Glen's Schwab account. Full transparency on wins and losses.
Read morePortfolioGlen's Positions
Current portfolio holdings — every ticker, every series, updated regularly.
Read moreInvesting Hub
All investing content — calculators, guides, analysis, and rankings in one place.
Read moreDisclaimer: This page is for informational purposes only and does not constitute financial or investment advice. Glen Bradford holds positions in all Fannie Mae and Freddie Mac preferred securities listed on this page. Preferred stock investing involves risks including suspension of dividends and loss of principal. Past performance does not guarantee future results. Always do your own research and consult with a qualified financial advisor before making investment decisions. Some content was generated or edited with AI assistance. Amazon links on this site use the affiliate tag glenbradford-20.