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This time I charted how each fund's distribution would be affected. Although the distributions were not negatively impacted initially, they eventually were almost a year after the Fed rate increases began. Consequently, I concluded that I could live with any interest rate hikes and was more than willing to accept reduced distributions when and if this would occur. Because I was able to conduct this study with municipal bond funds I decided I might be able to do the same with several of preferred funds I had written about when I did a series on them at the request of several of my followers.

FFC because it went back that far and because it was a preferred fund that invested in investment-grade preferred securities. The above chart shows the price and NAV movement during the period we are interested in researching. Surprisingly, the prices increased while the NAV dipped. What have I learned from this exercise? Unfortunately, not a whole lot, but enough to know that prognostications of doom for the preferred market when interest rate begin to rise again are not based on past historical norms.

In fact, I would expect the common shareholders to be far more negatively affected by sustained interest rate hikes than their preferred brothers. I state this simply because I believe commons are the canary in the coal mine, which is usually the first to be affected by a changing market and hardest hit. I also believe that as interest rates increase, those preferreds sporting the lowest coupon rates, henceforth the perceived safest, will most probably be more negatively affected than those sporting higher coupon yields simply because the lower yielding preferred's margins will be squeezed to a greater degree percentage-wise.

And although both commons and preferreds will most probably be negatively impacted by sustained interest rate hikes, unless the company faces serious jeopardy, the preferred fixed income dividends will continue to be paid, especially in the event they are cumulative. Dimes to dollars as the share price of the commons falls, be assured dividend cuts will not be far behind, and from my sad experience, in many instances, they will be cut directly proportional to the cut in price.

I suspect this is done to maintain the same basic dividend yield meant to entice a new group of unsuspecting investors who might not be aware of the recent share price fall. Unlike some, I don't claim to be able to forecast the future of the preferred market, but I strenuously resist the claims of those who think they can.

I have been more successful than most, certainly not because I am a sophisticated numbers guy who can accurately interpret complicated financial statements and by using that expertise prosper as a common shareholder. Create a new Playlist.

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