KeyCorp's Series I Preferred Shares: A High-Yield Dividend Play in a Rising Rate Environment

KeyCorp’s Series I Preferred Shares (KEY-I) have emerged as a compelling high-yield investment in a rising rate environment, offering a forward dividend yield of 4.53% as of September 2025 [3]. This yield, coupled with a stable credit profile and a unique fixed-to-floating rate structure, positions the shares as a strategic play for income-focused investors navigating the Federal Reserve’s ongoing tightening cycle.

Income Potential and Dividend Stability

KEY-I pays a quarterly dividend of $0.2050 per share, with the next payment scheduled for September 15, 2025 [3]. This translates to an annualized yield of 4.53% based on the current market price of $25.16 [1]. The shares trade at a 0.64% premium to their $25 liquidation preference, reflecting strong demand for their income stream amid a backdrop of rising short-term interest rates.

KeyCorp’s financial resilience further bolsters confidence in dividend continuity. In Q2 2025, the bank reported a 63.3% year-over-year increase in net income to $387 million and a 21% rise in revenue to $1.8 billion, driven by a 4% growth in net interest income and a 10% increase in noninterest income [1]. This performance underscores the bank’s ability to sustain payouts even as interest rates climb.

Creditworthiness and Risk Mitigation

While KeyCorp’s specific credit rating for preferred shares is not explicitly stated, the company’s long-term issuer rating of “A (low)” from Morningstar DBRS, with a stable outlook, signals robust credit fundamentals [2]. This rating reflects KeyCorp’s strong capital position and its success in initiatives like the Key Secured Credit Card program, which has helped 40,300 clients improve their credit scores since 2019 [3]. For preferred shareholders, this stability reduces the risk of dividend cuts—a critical concern for non-cumulative preferred shares like KEY-I, which do not accumulate unpaid dividends [1].

Valuation Sensitivity in a Rising Rate Environment

The fixed-to-floating rate structure of KeyCorp’s preferred shares introduces nuanced valuation dynamics. For Series I (KEY-I), the shares are part of the Fixed-to-Floating Rate Perpetual Non-Cumulative Preferred Stock, Series E, which carries an initial coupon of 6.125% and transitions to a floating rate of three-month LIBOR plus 3.892% starting December 15, 2026 [5]. This structure offers dual advantages:

1. Short-Term Attractiveness: Until December 2026, the fixed 6.125% rate provides a premium yield relative to newly issued preferred shares, which may offer lower coupons in a higher-rate environment.
2. Long-Term Flexibility: Post-December 2026, the floating rate component ensures that dividend payments adjust with market conditions, mitigating the typical price declines seen in fixed-rate preferred stocks during rate hikes.

However, the transition period itself introduces risk. If rates rise sharply before December 2026, the market value of KEY-I could decline, as fixed-rate preferred shares become less competitive. Investors must weigh this against the potential for higher yields post-reset.

Strategic Positioning for Investors

KeyCorp’s strategic initiatives further enhance the appeal of its preferred shares. The bank plans to expand its investment banking team by 10% and increase technology spending by $100 million in 2025 to bolster platforms in foreign exchange and derivatives [3]. These moves align with broader efforts to grow noninterest income, which rose 10% year-to-date in 2025 [1]. A stronger earnings base supports the bank’s ability to maintain dividend payouts, even as interest costs rise.

For income investors, KEY-I offers a balance of yield and structural protection. The shares’ current premium pricing suggests market confidence in KeyCorp’s ability to navigate rate hikes, but the fixed-to-floating reset in late 2026 adds a layer of adaptability. In contrast, purely fixed-rate preferred stocks face greater valuation risks as the Fed continues its tightening cycle.

Conclusion

KeyCorp’s Series I Preferred Shares represent a high-yield, income-generating opportunity with a unique structural hedge against prolonged rate hikes. With a forward yield of 4.53%, a stable credit profile, and a fixed-to-floating rate transition in late 2026, KEY-I balances immediate income with long-term flexibility. While rising rates may temporarily pressure the shares’ price, the reset mechanism and KeyCorp’s strong financial performance position the investment as a resilient play in a challenging interest rate environment.

Source:
[1] KeyCorp Q2 2025 Earnings Report [https://investor.key.com/press-releases/news-details/2025/KEYCORP-REPORTS-SECOND-QUARTER-2025-NET-INCOME-OF-387-MILLION-OR--35-PER-DILUTED-COMMON-SHARE/default.aspx]
[2] Morningstar DBRS Confirms KeyCorp’s Long-Term Issuer Rating [https://dbrs.morningstar.com/research/454788/morningstar-dbrs-confirms-keycorps-long-term-issuer-rating-at-a-low-stable-trend]
[3] KeyCorp Strategic Growth and Financial Performance [https://www.investing.com/news/transcripts/keycorp-at-barclays-conference-strategic-growth-and-optimism-93CH-4229754]
[5] KeyCorp Series E Preferred Shares Terms [https://www.preferredstockchannel.com/symbol/key.pri/]