Meanwhile, hurt by the credit mess, cash-strapped banks sought to shore up their balance sheets by issuing billions of dollars in new preferreds.  As the supply of preferred stocks started to rise, two things happened. New issuers realized they had to raise their offering yield to attract buyers, and the share prices of existing preferreds dropped until their yields were competitive with those of newly issued preferreds.  

     There's Never Been a Better Time for Safer Income

     Not only do preferreds pay higher yields than stocks, but their payouts are more secure than common dividends.  Preferred shareholders have a claim to a company's assets ahead of common shareholders -- that's why they're called "preferred."  In other words, if a company runs into trouble, it must service the preferred shareholders before it can even think about paying a dime to common stock investors.

     While a preferred stock can still default on its payments, ratings company Standard and Poor's classifies this as an "extremely rare" occurrence.  Principal Global Investors estimated the historical default rate for investment-grade preferred stocks was less than 0.2%.

     And unlike common dividends, preferred payouts are predictable -- they don't go up and down with a company's earnings.  In fact, a number of banks like National City (NYSE: NCC) and Citigroup (NYSE: C) have cut their common share dividends in reaction to the credit crisis - while continuing to pay their preferred dividends at their issued yield like clockwork.

     Preferred Shares Are Less Volatile

     And after the last few months of whiplash-producing market swings, investors will enjoy the lower volatility of these holdings.  In the last month, we've seen more than our fair share of swings to the downside -- including a historic drop of 777 points on the Dow.  But while the S&P 500 lost -20.4% in the last 30 days, many investment-grade preferred stocks significantly outperformed that mark. Consider that J.P. Morgan's 8 5/8 Preferred (NYSE: JPM-PI) lost only -1.3% over the last month, and that's before adding in the dividend.    

     Moreover, while they make for a particularly timely investment now, preferred stocks are also a great way to diversify your portfolio to ensure regular dividend payments. After all, many of these securities pay monthly dividends. This is particularly important for retired investors, many of whom depend on their portfolios to pay their regular bills.

     A Better Yield Than Buffett's

     This once-in-a-generation chance to pick up preferred shares is one of the factors that Carla Pasternak, editor of High-Yield Investing, considered when she chose a preferred stock for her latest "Income Security of the Month."  With a solid 10.1% yield, this preferred stock has made reliable distributions since its IPO in December 1992.  In total, investors who bought when the preferred issue went public have enjoyed over 180 consecutive payments -- come rain or shine.  

     And considering the challenges of the past year, this preferred stock has held up very well.  During that time, it has registered a total return of +8.5% versus the S&P 500's loss of -26% -- outperforming the broader index by 36.5 percentage points!  But that's nothing new, as this preferred stock has outperformed the S&P by nearly 25 percentage points over the last five years.

     Carla has put together a comprehensive analysis of this exceptional preferred stock opportunity.  In her profile, she spells out in detail how the safety of its government-backed holdings and legally obligated monthly dividend payments are especially attractive given the current conditions in the markets. And of course, with its solid 10.1% yield this idea is right on par with the yields generated by Warren Buffett's headline-making deals. To read Carla's report, please visit this link.

     Thanks for joining me on my search for today's highest-yielding securities!