Preferred Stock (CH1)

Preferred Stock:

An equity security with a fixed-income component. Dividends are paid semiannual with stated dividend rate or a fixed rate that the corporation must pay. Preferred stock generally does not achieve growth (like with common shares).

Dividend (Cash payout):

Most common type of dividend. This can be sent out in the form of a check, directly to the stockholders. If stock is held at a brokerage firm, then the check will be sent to the brokerage firm and will be credited to the investor's account (this is called "street name").

Payment of Dividends (preferred stock):

Must be paid before any dividends are paid to common shareholders. They have the priority claim on the corporation's distribution of earnings.

Adjustable Rate Preferred:

Pay a stated dividend that adjust based on the prevailing interest rates paid in the marketplace or on a benchmark index. The rate of the dividend will be adjusted on the reset date and may be done semiannually or at longer set intervals as determined by the issuer. May have a stated floor or cap rate.

Dividend (Stock payout):

Pays stock dividend to shareholders. This is usually done so the corporation can conserve cash for other business purposes. After dividends, the price will decrease per stock to reflect the more shares outstanding. This however, does not change the total market value of the company.

Perpetual (Preferred stock):

Preferred stock, unlike bonds, is perpetual, having no maturity date. Investors may hold shares for as long as they wish or until the shares are called in by the company under a call feature.

Cumulative Preferred:

Protects investor during times when Corp. cannot pay dividend. They accumulate arrears until dividend can be paid (They are first to be paid).

Participating Preferred:

Receives the dividend payable to the common stockholders over and above the stated preferred dividend.

Dividend (Property/Product payout):

This is the lease likely type of dividend. The company may send out to its shareholders samples of its products or portions of its property.

Stated dividend rate:

Total expected dividend payments from an investment, found or portfolio expressed on an annualized basis plus any additional non-recurring dividends that may be received during that period.

Types of Preferred Stock:

Straight/Noncumulative, Cumulative Preferred, Participating Preferred, Convertible Preferred, Callable Preferred and Adjustable Rate Preferred.

Nonvoting (Preferred stock):

Most preferred stock is nonvoting. Occasionally the holder of a cumulative preferred stock may receive voting rights in the event the corporation misses several dividend payments.

Types of Dividends:

Cash, Stock and Property/Product.

Callable Preferred (benefits the Company):

Allows the corporation to call in or redeem the preferred shares at its discretion or after some period of time has expired (is also called "call protection").

Convertible Preferred:

Allows the preferred stockholder to convert or exchange their preferred shares for common shares at a fixed price known as the conversion price.

Interest Rate Sensitive:

Due to Preferred stocks fixed income, they are more sensitive to price changes in the interest rates. Interest rates decline, then value of preferred shares increase. Interest rates increase then visa versa. Interest rates and Preferred stock prices have an inverse relationship.

Par value (preferred stock):

Dictates what the amount of the dividend is. Typically is $100 unless otherwise stated. Which dividends are expressed as a % of the par value.

Straight/Noncumulative:

Just stated dividend rate and nothing else. If corporation is unable to pay the dividend, it is not owed to the investor.