Preferred Stock
Nickname
Preferreds
Preferred stocks are a hybrid security that is partially like a bond and partially like a stock
- Preferreds pay a fixed payout like a bond
- Preferred payments are considered dividends like with a stock - they are not contractual interest payments
- Usually less risky that common stock - preferreds are higher up on the capital stack
- Companies are usually required to make preferred dividend payments before paying common holders
- Preferred holders come before common holder during a bankruptcy
- can be considered an orphan asset class:
- stock investors consider them to be bonds and ignore
- bond investors consider them to be stocks and ignore
- primarily are owned by individual investors (some institutions)
- usually pay better yields than common stocks
- Preferred stocks usually have a par value of $25 per share (but not always)