You don't have to be a VIP to buy preferred stock

— -- Q: How can someone learn more about buying individual preferred shares, and what are the positives and negatives of owning them?

A: Investors disappointed with low yields on bonds and savings accounts, but too scared to jump into stocks, are taking a close look at preferred stock.

Preferred stock is an interesting type of investment that's kind of a cross between stock and a corporate bond. Like a bond, preferred shares pay cash to investors. And those dividends are ususally higher than on a company's common stock. Preferred stock dividends generally exceed money market interest rates and market dividend yields.

Like dividends paid on common shares, the cash payments to preferred shareholders can be stopped at any time. But if a company has to choose between paying its common or preferred stockholders, it must pay the preferred. Hence, the name.

You can read more about preferred shares in this previous Ask Matt column.

Investing in a broad basket of preferred stocks can be a good strategy because you reduce your exposure to severe financial distress at any one company. It's critical to have that diversification now, since preferred shares are issued by a lot of financial companies, many of which are hurting.

However, you may decide to buy an individual preferred stock. The level of due diligence is tremendous. You'll need not only to study the stock as a bond investor would, but also a stock investor.

Luckily, there are many resources. Winans International provides excellent information on preferred stocks. The site's operator, Ken Winans, has also written a book on the topic, Preferreds: Wall Street's Best-Kept Income Secret.

Income Investing Information helps you search through available preferred shares to find those that fit your needs. And PreferredsOnline has some excellent tools, but it charges $445 a month for access.

Matt Krantz is a financial markets reporter at USA TODAY and author of Investing Online for Dummies. He answers a different reader question every weekday in his Ask Matt column at money.usatoday.com. To submit a question, e-mail Matt at mkrantz@usatoday.com. Click here to see previous Ask Matt columns.