Unlocking 7% Income: Why Preferred Stocks Are a Retiree's Best Bet

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  Published in Stocks and Investing on Friday, December 12th 2025 at 13:48 GMT by Seeking Alpha

The Hidden Income Goldmine for Retirees: Why 7% Preferred Stocks Should Be in Your Portfolio

In a world where safe‑haven yield curves have been at historic lows for years, the idea of finding a 7% income source in the stock market can feel like chasing a mirage. Yet, a recent Seeking Alpha piece argues that the reality is far different—there are dozens of “plain‑sight” preferred stocks offering yields that hover around or even exceed that level. For retirees looking to shore up their cash flow, the article presents a compelling case that these instruments deserve a spot in their portfolios.

What Are Preferred Stocks, and Why Do They Pay So Much?

Preferred shares sit somewhere between bonds and common shares. They’re equity, so they carry the upside of stock ownership, but they come with a fixed dividend that behaves more like a bond coupon. The dividends are usually higher than what a company would pay on its common shares and are often priority paid over common dividends, offering a cushion of protection for income‑seeking investors.

The article lays out the key advantages that make preferreds especially attractive for retirees:

• Higher, Fixed Income – The dividend is set at the time of issuance, often in the 5–8% range, which is significantly higher than typical municipal bonds and many corporate bonds.
• Priority Over Common Stock – In the event of a liquidation, preferred shareholders get paid before common shareholders, providing a safety net.
• Tax Advantages – While dividends are generally taxed at ordinary income rates, preferreds issued by certain municipal entities can offer tax‑free or tax‑deferred income.
• Lower Volatility – Preferreds tend to move less than common stocks and are less impacted by earnings volatility, providing a more stable income stream.

The Seeking Alpha piece also explains the mechanics behind dividend payments: many preferreds are “cumulative,” meaning that if a company misses a dividend payment, it must make it up before it can pay common dividends again. That’s a key safety feature for retirees who rely on steady cash flow.

Where Are These 7% Yields Hiding?

The author breaks down several sectors where premium preferreds live:

1. Financial Institutions – Banks and credit unions routinely issue preferreds with attractive yields. The article highlights, for instance, Wells Fargo’s Series G Preferred, which offers around 6.5% after fees, and Bank of America’s 7% Series A Preferred, a near‑perfect match for the “7%” theme.

2. Utilities – Classic utility giants such as Duke Energy, Southern Company, and Consolidated Edison have long been known for their stable cash flows. Their preferreds often sit in the 6–8% range. The article notes that these utilities tend to be less sensitive to economic cycles, making them a lower‑risk pick.

3. Telecommunications – Companies like AT&T and Verizon issue preferreds with yields around 6%. The article mentions AT&T’s preferreds, which have historically been a “safe” haven for retirees because of their robust dividend history.

4. Healthcare & Biotech – Though less common, the article points to a handful of high‑yield preferreds from pharmaceutical companies that have proven dividend reliability, offering a diversification angle for retirees looking to avoid over‑concentration in traditional sectors.

5. Real‑Estate Investment Trusts (REITs) – A few REITs, especially those that are “tax‑qualified,” have issued preferred shares with yields up to 7%. These provide a blend of real‑estate exposure and higher income.

The article includes a handy table (which the author references via a link to a supplemental spreadsheet) showing the top 15 preferreds sorted by yield, maturity, and credit rating. This list serves as a practical starting point for any retiree looking to build a preferred‑stock ladder.

The Strategic Approach: Building a Preferred Ladder

The author goes beyond simply listing potential holdings and explains how to structure a preferred portfolio. The recommendation is to adopt a “ladder” strategy—purchasing preferreds with varying maturities and call dates. This ensures liquidity: as one preferred approaches its call date, it can be sold or rolled into a newer issuance, keeping the portfolio fresh.

A key point emphasized is the importance of diversification—not just across sectors but also across credit qualities. While high‑yield preferreds are tempting, they often come with higher credit risk. The article stresses balancing high‑yield picks with “solid” preferreds from top‑rated issuers. It cites a study showing that a mix of high‑yield (6–8%) and medium‑yield (4–6%) preferreds can reduce overall portfolio volatility by about 20%.

The article also notes that the call risk—when a company calls back its preferred shares—is a major concern. The recommended way to mitigate this risk is to focus on “non‑callable” or “soft‑callable” preferreds, especially those with long call protection periods. A link in the article takes readers to an industry‑wide call‑risk assessment tool that ranks preferreds by their call protection levels.

Potential Pitfalls and How to Avoid Them

Retirees might be wary of preferreds because they’re less well‑known than common shares or bonds. The article offers several cautionary points:

• Credit Risk – Even “high‑yield” preferreds can default. The piece recommends using a credit rating filter (e.g., at least BBB‑) and watching the issuer’s debt‑to‑equity ratios closely. A link leads to a credit‑risk dashboard that tracks financial stress metrics in real time.

• Dividend Suspension – If a company enters financial distress, it can suspend preferred dividends. The article explains that cumulative preferreds help mitigate this risk because missed dividends must be paid before any common dividends.

• Tax Considerations – Because preferred dividends are taxed as ordinary income, retirees in high marginal tax brackets might end up with a lower after‑tax yield. The article includes a tax calculator (linked) that shows the effective yield after accounting for state and federal taxes.

• Liquidity – Some preferreds trade in thin markets, so selling them might incur higher transaction costs or be impossible if the market dries up. The article advises to keep liquidity in mind and prefer the more liquid issuers such as major banks and utilities.

Bottom Line: Why 7% Preferreds Should Be Part of the Retiree Toolbox

The Seeking Alpha article’s central thesis is simple: if you’re looking for a reliable income stream, the world of preferred stocks offers a hidden trove of options that can match or beat 7% yield, especially when you focus on high‑quality issuers with a track record of stable dividends. These instruments provide the “income security” retirees crave, with the added benefit of being equity‑backed, which can offer upside potential that pure bonds don’t provide.

The piece is practical and actionable. It provides a list of current high‑yield preferreds, a framework for building a diversified ladder, and a set of tools and links to help investors assess credit risk, tax implications, and liquidity. For retirees who are comfortable with a slightly higher risk tolerance than traditional bonds but still need a steady cash flow, 7% preferreds could be the “plain‑sight” source of yield that has been overlooked in favor of lower‑yield bonds.

In an era where bond yields are flirting with the 0‑2% zone, the article reminds us that the equity market still holds pockets of high‑yield opportunities—just hidden under the veil of preferred shares. If you’re a retiree or planning to retire soon, it’s worth taking a closer look at the preferred ladder and considering whether a portion of your portfolio could be anchored in these income‑generating equities.