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Preferred shares can be a goldmine for income investors - offering higher yields, priority over common stock dividends, and far less price volatility. If you’re building an income portfolio, understanding how to buy preferred shares the right way is critical.

Whether you’re looking at (AGNCO) , (NLY-G) , or other high‑yield dividend payers, these five rules will help you avoid the most expensive mistakes in income investing.

Rule #1: Limit Orders Only

Preferred shares aren’t like buying (AAPL) or (TSLA) , where you can hit “market buy” without much thought. Many preferreds trade with low volume, meaning market orders can easily overshoot the ask. That overpayment instantly eats into your yield.

Example: If AGNC Investment Corp.’s preferred (AGNCO) trades around $23.80, a sloppy market order could get filled at $24.20. That’s lost yield and less upside if prices return toward $25.

Rule #2: Avoid Stop‑Loss Orders

In the world of preferred shares, stop‑loss orders can be dangerous. Thin trading often triggers them at far below fair value, selling your income investment for no good reason. If you need to exit, use a limit order and set your own price.

Rule #3: Always Check the Stripped Price

The stripped price adjusts for accrued dividends. If a preferred share looks “cheap” at $24.90 but already has $0.40 of accrued dividends, your real price is $24.50. That matters when your capital gain potential tops out near $25.

Failing to check stripped prices is one of the most common mistakes made when buying preferred shares.

Rule #4: Respect Call Risk

Most preferred shares are callable at $25, meaning the issuer can redeem them at that price anytime after the call date. If you pay $26 for (TWO-A) and it’s called, you’ve locked in a capital loss.

For high‑yield dividend payers, call risk is not just a detail - it can define your total return. Always check call dates before buying.

Rule #5: Know the Business Behind the Dividend

Preferred shares are safer than common stock, but they’re still tied to the issuer’s financial health. Mortgage REIT preferreds like (NLY-G) or (TWO-B) have very different risks than bank preferreds or utility preferreds.

You’re not just buying a dividend - you’re buying into a business model. Understanding the underlying company is essential for any serious income investing strategy.

Bottom Line

Preferred shares can be an outstanding addition to a monthly income portfolio. They offer steady payouts, high yields, and defensive positioning compared to common stock. But without understanding stripped prices, call risk, and trading quirks, you could be setting yourself up for losses.

Follow these rules and you’ll stack the odds in your favor.

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This article was compiled by my assistant. If there are any mistakes, blame him - I certainly will.

Disclosure: I currently have a position in O . I may frequently trade in the preferred shares of any mortgage REIT and occasionally in the common shares.