PG&E's 4.50% PFD 1ST Series: A Defensive Yield Play in a Rising Rate Environment

In a market environment marked by persistent inflation and tightening monetary policy, income-focused investors are increasingly prioritizing securities that balance yield with downside protection. Pacific Gas and Electric Company's (PG&E) 4.50% PFD 1ST series emerges as a compelling candidate in this landscape, offering a robust 6.82% yield while benefiting from PG&E's improving credit profile and structural safeguards. This analysis evaluates the preferred stock's stability and income potential, contextualizing its role as a defensive yield play amid rising interest rates.

Financial Fortification: PG&E's Strengthening Foundation

PG&E's recent financial performance underscores its capacity to sustain preferred dividend payments. For 2025, the company reaffirmed non-GAAP core earnings per share (EPS) guidance of $1.48–$1.52, reflecting a 9% growth trajectory through 2028PG&E Reaffirms 2025 Financial Guidance Amid Challenges^[1]. Third-quarter 2024 results further validated this trajectory, with non-GAAP core EPS reaching $0.37, driven by cost savings and regulatory approvalsPG&E Corporation Reports Strong Third-Quarter Results^[2]. These metrics signal a company regaining operational and financial momentum after years of wildfire-related liabilities.

Capital expenditures also highlight PG&E's commitment to long-term stability. The utility expanded its 2024–2028 capital plan by $1 billion to meet growing demand, financed through existing liquidity and junior subordinated notesPG&E Corporation Reports Strong Third-Quarter Results^[2]. This proactive approach mitigates equity dilution risks, a critical factor for preferred shareholders who prioritize dividend continuity over common stock volatility.

Dividend Resilience: Structure and Performance

The 4.50% PFD 1ST series (PCG.PRH) is a cumulative, redeemable preferred stock with a $25 par value, paying $1.125 annually in dividends ($0.28125 quarterly)PG&E Corp (Holding Co) | 4.5% Redeemable 1st Preferred^[3]. Recent declarations, including a $0.28125 payout in May and November 2025PG&E Sets Dates for Quarterly Stock Dividends^[4], confirm the series' consistency. While 2023 saw a temporary suspension of preferred dividendsPacific Gas and Electric Company’s Preferred Dividend History^[5], the resumption in 2024 and subsequent increases demonstrate PG&E's prioritization of preferred obligations.

Structurally, the series offers additional safeguards. Its cumulative feature ensures dividends accrue if deferred, creating pressure for timely payments. The redemption price of $25.75 (plus accrued dividends) also grants PG&E flexibility to retire shares if market conditions warrant, though no mandatory redemption dates existPG&E Corp (Holding Co) | 4.5% Redeemable 1st Preferred^[3]. This aligns with defensive investing principles, as the stock's fixed dividend and redemption terms insulate it from interest rate volatility more effectively than perpetual preferreds.

Credit Ratings: A Key Tailwind

PG&E's credit profile has improved markedly, bolstering confidence in its ability to meet obligations. In March 2025, Moody's upgraded PG&E Corporation's senior secured debt to Ba2 from Ba3 and assigned Pacific Gas & Electric a Baa3 issuer ratingMoody’s Upgrades PG&E Corporation and Pacific Gas & Electric’s Ratings^[6]. Fitch followed suit with a BB+ rating for the preferred stockPG&E Corporation - Investors - Fixed Income^[7]. These upgrades reflect reduced wildfire risks—PG&E has invested $20 billion in mitigation since 2020—and legislative reforms like California's AB1054, which caps liability and enables cost recoveryMoody’s Upgrades PG&E Corporation and Pacific Gas & Electric’s Ratings^[6].

The improved ratings are particularly significant in a rising rate environment. Utilities with stable cash flows and strong credit support are better positioned to maintain preferred dividends than cyclical or highly leveraged issuers. PG&E's Baa3 rating (just one notch below investment grade) suggests manageable default risk while offering a premium yield over investment-grade alternatives.

Yield Attractiveness and Risk Considerations

With a 6.82% yield, the 4.50% PFD 1ST series outperforms both the 10-year U.S. Treasury (4.25% as of September 2025) and the S&P 500's 1.5% dividend yieldU.S. Treasury Yield Data (September 2025)^[8]. This premium is justified by PG&E's utility sector positioning, which provides stable cash flows, and its recent credit improvements. However, investors must weigh this against potential risks:

1. Callable Risk: PG&E can redeem the shares at $25.75, potentially limiting capital appreciation. While the company has no immediate redemption plans, rising interest rates could incentivize refinancing at lower costs.
2. Regulatory Uncertainty: California's evolving wildfire policies remain a wildcard. While AB1054 provides near-term relief, future legislation could alter liability dynamics.
3. Rate Sensitivity: Though preferred stocks are less volatile than bonds, rising rates could depress the series' market price if PG&E delays redemptions.

Historical performance of a simple buy-and-hold strategy initiated on ex-dividend dates since 2022 has underperformed, with a cumulative return of -6.95% and a maximum drawdown of -21.64%. This highlights the importance of balancing yield with risk management, as the strategy's Sharpe ratio of -0.02 indicates poor risk-adjusted returnsHistorical performance of PCG.PRH buy-and-hold strategy (2022–2025)^[9]. These findings underscore the need for disciplined entry timing and exit rules, particularly in a rising rate environment where preferred stock prices may face downward pressure.

Conclusion: A Strategic Fit for Defensive Portfolios

PG&E's 4.50% PFD 1ST series represents a rare combination of high yield, structural safeguards, and improving credit fundamentals. Its cumulative, redeemable structure and alignment with a utility's stable cash flows make it well-suited for a rising rate environment, where income preservation and downside protection are paramount. While callable risk and regulatory uncertainties persist, the stock's 6.82% yield and PG&E's financial trajectory position it as a compelling defensive play for investors seeking reliable income.