Preferred Stock
Preferred Stocks offer individual investors an investment opportunity that falls between stocks and bonds. Preferred stocks are usually characterized by lower risk and higher dividends than common stock issued by the same company, and by higher dividends and more risk than debt instruments issued by the same company.
In many aspects, preferred stocks are similar to bonds, in that a fixed amount is paid to the holders in the form of a dividend each year, generally on a quarterly basis. Preferred stock is generally favored over common stock in terms of dividend payment.
All types of investors look to preferred stocks to diversify their portfolios including banks, trust departments, pension and profit sharing managers, and of course individual investors. Preferred stocks offer unique advantages to investors:
- Attractive Yields -- Since the issuing corporation is paying these dividends from pre-tax dollars, they can pass on savings in the form of higher dividends to the holders.
- Steady Income -- Regular monthly or quarterly income, in the form of a dividend, is based on a fixed rate.
- Liquidity -- The majority of preferred stocks are listed on the New York Stock Exchange and trade in $25 par amounts.
- Flat-Rate Pricing -- Since there is no accrued dividend, the holder of these securities on the record date receives the entire dividend.
- Variety -- Preferred stocks are issued by a broad spectrum of issuers including banks, utilities, finance companies, and industrials.
- Variety of Maturity Dates -- In some cases, preferred stocks have maturity ranges from 30 to 49 years. Companies typically have the option to extend maturity from 19 to 50 years.
