“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.

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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.

Peer Comparison


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).

PGX’s dividend yield is, however, higher than the Invesco Variable-Rate Preferred ETF’s (NYSEARCA:VRP) 4.28%, and on par with Invesco Financial Preferred ETF’s (NYSEARCA:PGF) 4.96%.

Summing Up

Here is a checklist that income investors can consider before investing in PGX:

  1. 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).
  2. Investing in PGX is way better than investing in government bonds, which offer much lower yields (Above-bond-average income box checked).
  3. 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).
  4. 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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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: This writing is for informational purposes only and Lead-Lag Publishing, LLC undertakes no obligation to update this article even if the opinions expressed change. It does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction. It also does not offer to provide advisory or other services in any jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Lead-Lag Publishing, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.

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Via SeekingAlpha.com

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