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This Preferred Stock Yields 10.1%

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It's rare to find a double-digit yield from a preferred stock. It's especially rare to find this sort of yield from one of the world's largest companies.

Here in the United States, you'd be lucky to get 6% from preferred stock in a blue-chip company. The iShares S&P U.S. Preferred Stock Index (NYSE: PFF), an exchange-traded fund (ETF) that invests in the preferred stock of S&P 500 companies, only pays 5.9%.

But it's a different story with international companies.

For example, the preferred stock I'm going to tell you about belongs to one of the largest financial institutions in the world. It has branches all over Latin America, the United States and Europe. 

Recently, the stock has been punished because it's headquartered in one of Europe's most troubled areas: Spain.

Mention an investment in a Spanish company to most people, and they'll give a quick "no thanks." But in this case, that's misguided.

Despite the company's location, these preferred shares are isolated from the European debt crisis, they're safer than general common stock, and right now they're paying an above-average 10% dividend yield.

I'm talking about Santander Preferred E (NYSE: SAN-PE) -- preferred stock in one of the world's largest financial institutions, Banco Santander (NYSE: SAN)

And while the shares are available here on the New York Stock Exchange, Madrid-based Banco Santander is actually the largest bank in the euro zone. It's the European equivalent of Wells Fargo (NYSE: WFC).

Lately, common shares in Santander have taken a beating. Anything associated with Spain -- especially its banks -- is being sold. But while investors are painting all Spanish banks with the same brush, Santander is in solid financial shape.

For one, Santander has a far more conservative balance sheet than its Spanish peers. As of the end of the first quarter, Spanish loans were just 111% of total deposits, down from 178% in 2008. 

It also has significant geographical diversification. Only 12% of the bank's profits come from Spain and 1% from Portugal. Meanwhile, 27% of its profits were generated in Brazil, 13% in Mexico, 10% in the United States and 13% in the U.K. 

As a whole, emerging markets are now more important to Santander's profitability than mature economies, accounting for 56% of total profits. 

And while Santander is on solid financial footing relative to most Spanish banks, the Santander Preferred E shares carry even lower risks than the common stock. 

From time to time, Santander has resorted to paying dividends on its common shares in the form of additional shares rather than cash to conserve money, but that's not possible for the preferreds. The company cannot eliminate or delay making scheduled preferred payments without eliminating its common dividends entirely.

That makes it likely that even if Spain requires further assistance from the European Union, Santander will continue to pay the $0.66 quarterly distribution to holders of the preferred E shares. 

At today's price of $26.20 a share, this means you can own preferred stock in one of the world's largest banks, and secure a 10%-plus dividend yield.

By comparison, SPDR Wells Fargo Preferred Stock (NYSE: PSK) -- an ETF that owns preferred stock in some of the largest banks in the United States -- only pays 6.2%.

Risks to Consider: Of course, this stock isn't without risk. The European debt crisis is still in full force, and until things get resolved, you can expect volatility if the market hits a rough patch.

Action to Take --> But stocks like Santander just show you the kind of opportunities available to income investors who are willing to invest in the international markets.

-- Paul Tracy

P.S. -- If you'd like more information about international dividend payers, make sure to read my latest research on the subject here. In my report, I've given you the names and ticker symbols of some of my favorite high-yield international stocks right now. Click here to learn about these stocks now.

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