When a newsletter promises a double-digit yield in a world where short-term Treasuries pay roughly half that, the first question any investor should ask is not “how do I buy it” but “why does this pay so much.” Preferred stocks are the usual answer, and high-yield preferreds are a real, well-established corner of the market. The 12% preferred at the center of Nick Giambruno’s Financial Underground pitch is one of them, and it is a useful lens for understanding the whole category.
What a Preferred Stock Is
A preferred stock is a hybrid. It sits between bonds and common stock in the capital structure, paying a fixed dividend before common shareholders receive anything, but standing behind bondholders in a liquidation. Preferreds generally have no voting rights and limited upside, and in exchange they behave more like fixed-income securities, trading mostly on their yield rather than on earnings growth.
That fixed-income character is why preferreds attract income investors. They offer yields well above common-stock dividends and, in many cases, above corporate bonds, because they carry a particular set of risks that sit between the two.
Where the High Yield Comes From
The yield on any preferred is compensation for risk, and high-yield preferreds are high-yield for a reason. Some of that risk is structural: preferreds are sensitive to interest rates, they can be called away from you when the issuer wants to refinance at a lower rate, and their prices can fall when credit conditions tighten. Some of it is issuer-specific: the riskier the company, the more it has to pay to attract capital.
Strategy’s STRC, the “Stretch” preferred paying 12%, is a vivid example of the issuer-specific kind. The issuer is a Bitcoin treasury company, not a bank or utility, and its ability to pay depends on the price of Bitcoin. The 12% is the market’s price for taking on that volatility, and the instrument’s 30% drawdown during the 2026 crypto selloff showed that volatility plainly. We detail that in our STRC explainer.
How They Compare to Other Income
The useful comparison is against the alternatives an income investor faces. A short-term Treasury pays around 4% to 5% with essentially no credit risk but no inflation protection. A quality corporate bond pays a bit more with modest credit risk. A bank or utility preferred might pay 6% to 8% with real but manageable risk. A Bitcoin-treasury preferred pays 12% because the risk is a whole different category.
That ordering is the key insight. As you climb the yield ladder, you are not getting a free lunch, you are accepting a specific, identifiable risk at each step. The question is always whether the extra yield is worth the extra risk, given your own situation. Our tax deferred income investments explainer covers how the tax treatment of these payments changes the math.
A Framework for Evaluating Any Preferred
When a high-yield preferred crosses your desk, four questions cut through the marketing. What is the actual yield, and is it fixed or variable? What is the issuer, and what funds the dividend? Where does the security sit in the capital structure? And what is the tax treatment of the distributions?
The fifth and most important question is what has to go right for the dividend to keep getting paid, and what happens if it goes wrong. On all five counts, STRC is a legitimate security with a real yield and an unusually honest paper trail, but it is not “safe” in any conventional sense. For income investors who want the more traditional side of the market, our best income stocks explainer is the better starting point.
Call Risk and Rate Sensitivity
Two risks separate preferreds from ordinary bonds, and both are worth naming. The first is call risk. Most preferreds can be called, or redeemed, by the issuer after a set date, which means the company can hand you back your principal just when the yield looks most attractive. If rates fall and the issuer can refinance more cheaply, a call becomes likely, and your high yield disappears at the worst time.
The second is rate sensitivity. Many preferreds have no maturity date, which makes them behave like very long-duration bonds. When interest rates rise, their prices fall, sometimes sharply. When rates fall, they appreciate. A preferred bought for income is not a hold-to-maturity bond; it is a perpetual claim whose market price can move a lot with the rate cycle.
Neither risk is a reason to avoid preferreds. Both are reasons to understand exactly what you own, and to treat a 12% yield as a market price for a specific bundle of risks rather than a gift.
Ready to see the research? Click here to access Nick Giambruno’s report.
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