“In investing, we intuitively think we should make a number of small bets. A blockbuster strategy is the opposite. It means making fewer huge investments. But it turns out to be safer.” − Anita Elberse
The Invesco Preferred Portfolio ETF (PGX) invests at least 80% of its total assets in fixed-rate preferred securities that are part of the ICE BofAML Core Plus Fixed-Rate Preferred Securities Index, and rated at least B3 based on an average of ratings assigned by Moody’s, S&P and Fitch. PGX is designed to appeal to income investors who want a steady income but find bond yields too low and market volatility too high.
About 94% of PGX’s total assets were invested in the preferred securities of financial, utility, real estate, and communication companies as of February 29, 2020. I reckon the investment pattern would be more or less the same today because the fund churns just 18% of its holdings in a year.
Image Source: PGX’s Semi-Annual Report
Here is my take – once again – on PGX and whether it is still good enough to attract the no-risk steady-income seeker:
PGX’s Dividend History
PGX is consistent in paying monthly dividends and is on track to declare $0.75 in 2020, earning it a dividend yield badge of 4.98% based on its market price of $15.05 as of December 2, 2020.
Image Source: PGX’s Dividend History
The fund’s dividend yield averaged 5.2% in 2019 and is likely to average at 4.98% in 2020. The 3-year dividend yield CAGR is a negative 5.23%. One reason for this could be that safe-income investors are turning away from government bonds and highly volatile common-stock ETFs, and choosing to invest in preferred-portfolio funds like PGX instead.
PGX – Pros
Aside from the dividend payout and yield consistency, preferred stock holders are prioritized over common stock holders in case a company files for bankruptcy/liquidation. This gives additional safety to PGX’s preferred shares, which even otherwise too are highly rated.
PGX’s credit risk is very low because it invests a minimum of 80% of its total assets in highly rated preferred securities.
Its expense ratio is also low at 0.52% − and that’s another pro.
As of August 2020, PGX’s portfolio turnover was low at 18%, which is another advantage because a low churn helps steady the dividend yield.
Image Source: Seeking Alpha
Though PGX scores high on safety, and consistency of dividend payouts and yield, its 4.98% dividend yield lags behind three of its peers. The SPDR Wells Fargo Preferred Stock ETF (NYSEARCA:PSK), the iShares Preferred and Income Securities ETF (NASDAQ:PFF), and the VanEck Vectors Preferred Securities ex Financials ETF (NYSEARCA:PFXF) are available at dividend yields of 5.14%, 5.15%, and 5.40%, respectively (as of December 2, 2020).
Here is a checklist that income investors can consider before investing in PGX:
- The fund mostly invests in preferred securities that are highly rated by Moody’s, S&P, and Fitch. An investment in PGX is, therefore, a safe and sound investment (Safety box checked).
- Investing in PGX is way better than investing in government bonds, which offer much lower yields (Above-bond-average income box checked).
- PGX is consistent in paying dividends and currently offers a dividend yield of 4.98%. Its yield has been falling for the last 3 years because fixed-income investors who are turned off by bond yields may be investing in ETFs that invest in quality preferred securities (Consistency box checked).
- That said, three of PGX’s peers – PSK, PFF, and PFXF – offer a higher dividend yield. So investors do have other quality ETFs to choose from (This box is unchecked).
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