{"id":10861,"date":"2016-08-29T08:22:10","date_gmt":"2016-08-29T15:22:10","guid":{"rendered":"http:\/\/www.marketriders.com\/investing\/?p=10861"},"modified":"2016-12-20T13:41:47","modified_gmt":"2016-12-20T21:41:47","slug":"investor-facts-preferred-stock","status":"publish","type":"post","link":"https:\/\/www.marketriders.com\/investing\/investor-facts-preferred-stock\/","title":{"rendered":"Investor Facts: What Is Preferred Stock?"},"content":{"rendered":"

Preferred stock is a type of investment\u00a0that provides both\u00a0income and the possibility of growth.<\/p>\n

Most investors in companies buy common stock. Bondholders also are invested in a\u00a0company\u2019s future. A bond must be paid back with interest. That happens only if the company stays in business and prospers.<\/p>\n

A third type of investment, preferred stock, provides an income stream like a bond and\u00a0the growth potential\u00a0of a common stock, plus additional advantages.<\/p>\n

\"preferred<\/p>\n

For instance, preferred stock is\u00a0given priority when\u00a0dividends are paid. If dividends are suspended, payments accumulate and get\u00a0paid out first, before common stock\u00a0dividends<\/a>\u00a0resume.<\/p>\n

If a company goes under, preferred stock owners are given a higher claim<\/a> on the company\u2019s assets. They are behind bondholders but ahead of common stock investors.<\/p>\n

Many large U.S. corporations are mature businesses. They generate steady earnings cash that is not easy to reinvest. Their markets are crowded or they face heavy regulation. Two examples are telecoms and utility companies.<\/p>\n

Investors want growth or income from an investment<\/a>. Small-cap firms can be counted on for growth. Large-cap companies, while more stable, tend to grow more slowly.<\/p>\n

If a company is\u00a0large and profitable, its\u00a0bonds can be\u00a0oversubscribed. High demand means the bonds pay a low rate of interest. Preferred stock thus allows the investor to enjoy a more attractive dividend payout\u00a0while receiving some of the protections a bond investor would require.<\/p>\n

Important features<\/h2>\n

Preferred stock has two important features to understand: convertibility and call provisions.<\/p>\n

Convertibility means that a preferred stock holder can\u00a0convert preferred stock shares into common stock. This can be good if the common stock price rises significantly over the years, since convertible shares are more likely to track along with the common stock price.<\/p>\n

A call provision means that the company has the right to call back the stock after a given date. This could happen if interest rates fall and the company wants to reduce its cost of capital through\u00a0refinancing.<\/p>\n","protected":false},"excerpt":{"rendered":"

Preferred stock is a type of investment\u00a0that provides both\u00a0income and the possibility of growth. Most investors in companies buy common stock. Bondholders also are invested in a\u00a0company\u2019s future. 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