Preferred Stocks are Yielding 8.5% But Here’s The Leverage Risk Hiding Inside PFFA

If you own Virtus InfraCap U.S. Preferred Stock ETF (NYSEARCA:PFFA) for the income, the question that matters is whether that fat distribution will still be there next year. PFFA currently trades near $21 and pays $0.1725 per share each month, which annualizes to roughly $2.07 and puts the yield in the 9.5% neighborhood. That is a hefty payout for a fund holding senior-ranking securities, and PFFA gets there by combining preferred stock coupons with modest leverage. The question this piece answers is whether the math behind that yield is durable or stretched.

How PFFA Manufactures a Near 10% Yield

Manager Jay Hatfield runs PFFA as an actively managed portfolio of 188 preferred securities weighted toward financials, real estate, and energy infrastructure, with anchor positions including Apollo Global Management and KKR. Preferred shares sit above common equity in the capital stack and pay fixed coupons, so the underlying income stream is contractual rather than discretionary. Where PFFA differs from a plain-vanilla preferred ETF is the use of modest leverage and derivative overlays to amplify yield. That leverage is the difference between a 7% payout and the current near-9% figure, and it is also the lever that introduces volatility.

Credit Quality Carrying the Distribution

Preferred dividends are only as safe as the issuers paying them. PFFA’s tilt toward large financial issuers matters here because the banks behind names like Citigroup, JPMorgan, Bank of America, and Wells Fargo carry well-capitalized balance sheets and have never suspended preferred dividends in the modern era outside of forced regulatory action. That gives the core of the portfolio a credible cushion. The real estate and mortgage REIT preferred exposure is where investors absorb more risk, since those issuers depend on funding spreads and property cash flow. Hatfield’s Q4 2025 NAV return of about 1.2% versus 0.3% for the S&P U.S. Preferred Stock Index suggests his sector rotation has been adding value, not just yield.

The Interest Rate Variable

Preferred stocks behave like long-duration bonds, so rates drive both NAV and the cost of PFFA’s leverage. The Fed Funds Rate now sits at 3.75%, down 75 basis points over the past year, which directly lowers PFFA’s borrowing cost and widens the net spread the fund earns on its leveraged sleeve. The 10-year Treasury at 4.50% remains elevated, holding down preferred prices but supporting reinvestment yields on called or maturing issues. A renewed hiking cycle is the scenario that would compress the spread and pressure both NAV and the distribution.

Total Return, Not Just the Coupon

A high yield only counts if the price stays put. PFFA has returned roughly 9.7% over the past year and is up about 2.24% year to date, with a five-year total price gain of roughly 39%. The distribution has actually risen, from $0.16 monthly in 2021 to today’s $0.1725, with seven straight years of uninterrupted monthly payments. The friction is the 2.11% expense ratio, which is steep but reflects active management plus financing costs on the leveraged sleeve.

Verdict on the Payout

The PFFA distribution looks safe through the next twelve months. Contractual coupons from investment-grade-heavy issuers, a falling Fed funds rate that cheapens leverage, and seven years of payment continuity through COVID and the 2022 rate shock argue for durability. The honest caveat is that leverage and a roughly $1.91 billion asset base mean NAV will swing harder than passive peers like iShares Preferred and Income Securities ETF (NYSEARCA:PFF) if credit spreads widen. Income investors comfortable with that volatility get paid well to own it. Investors who prioritize stable principal over maximum yield may find an unlevered alternative a better fit.

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