How safe are your preferred shares?

Like bonds, preferred shares are rated as to safety by the national bond rating agencies, with Pfd-1 the highest rating (safest) and Pfd-5 the lowest (most risky).

Lower-rated preferreds will usually offer a higher yield, perhaps much higher than normal, but you have to be very careful if you decide to invest in them. The low rating is a red flag; it means the company is likely in financial difficulty. If you pick up the business section of the paper and come across a preferred share with an extraordinarily high yield, you can be sure there’s a good reason for it. No one gives away something for nothing.

You can find ratings for preferred shares by going to the website of Dominion Bond Rating Service