Companies issue stock to raise capital, and anyone with the funds to purchase it can do so. To the company, it doesn't matter who invests in the stock.

Sometimes, howeveꦺr, a corporation wants to lure a certain class of investor; the kind who wants fixed, scheduled payments. To do that, the company can i𝕴ssue bonds, which come with pros and cons.

Yet, if a company doesn't want to offer bonds, how can it offer equity while simultaneously guaranteeing investors a certain regular payment? Through the magic of preferred stock, which is sort of an amalgam of bonds and 澳洲幸运5官方开奖结果体彩网:common stock.

Below, we discuss some of the attributes of pre⛦ferred stock.

Are Rare

The differences between preferred stock and common stock are few but crucial. Preferred shareholders indeed receive dividend payments, which are a selling feature intrinsic to the sec𒀰urity. Conversely, corporations are under no obligation to offer dividend🌳s with common stock.

In practice, the blue-chip companies that offer di൲vidends on their common stock don’t issue preferred stock, at all. Seldom do the companies that don’t offer d🤪ividends on their common stock, either.

Preferred stock is a dying class of shares. None of the heavyweights, Apple Inc. (AAPL), Exxon Mobil Corp. (XOM), Microsoft Corp. (MSFT), etc., offer preferred stock.

Of the largest companies in the U.S., mainly the large banks offer preferred stock, such as Wells Fargo & Co. (WFC), Bank of America Corp. (BAC), Citigroup Inc. (C) and JPMorgan Chase & Co. (JPM).

In fact, preferred stock is mainly issued by banks. This is due to the continuation of the financial crisis and the corresponding bailouts of 2008-09. Preferred stock b🅘ecomes an additional asset on the balance sheet, something that banks need more than oil companies and semiconductor manufa♋cturers.

No Voting Rights

Most things in life involve a trade-off, and preferred stock is among them. From an investor’s perspective, the one primary disadvantage to preferred stock is that its holders don't have 澳洲幸运5官方开奖结果体彩网:voting rights.

Just from the name, you’d figure preferred stockholders would receive, well, preferential treatment. But when a company elects board members, it’s the c🌱ommon stockholders who do the electing while the preferred stockholders sit on the sidelines🎃.

Better During Bankruptcy

On the other hand, say the publicly traded company goes bankrupt. When the company 澳洲幸运5官方开奖结果体彩网:liquidates, the bondholders ge♎t paid first. This makes sense; they’re the creditors, the ones who lent their money to the company to he🐻lp it stay afloat.

Should there be anything left once the bondholders get made whole, the pref💮erred shareholders get paid next. Only then do the 𒊎common stockholders get paid, if at all. Thus the “preferred” in preferred stock.

There are some other differences between preferred and 澳洲幸运5官方开奖结果体彩网:common shares, too. The latter can be called by the company at its discretion. “We reserve the right to buy t🌞hese shares back from you on XYZ Date.”

In most cases, you can convert the preferred shares to common shares at a predetermined rate. Do that, and you’re sacrificing surety for volatility and the possibility of 澳洲幸运5官方开奖结果体彩网:capital appreciation.

Finding Preferred Stock

Preferred st🦩ock listings are different from common stock listings, which are easy to read. Preferred stocks are listed by their♕ series.

For example, Allstate's stock ticker is ALL. It has Series H, I, and J preferred shares. The listing would be ALL H, ALL I, and ALL J, respectively. Goldman Sachs has 16 series of preferred stock.

All preferred stock comes with🌱 different dividend yields. For All State, for e✅xample,

• Series H: 5.10%
• Series I: 4.75%
• Series J: 7.375%

Treated Like Bonds

All preferred stock issuances are about the same price. With very few exceptions, preferred shares go on the market at $25. That they don’t stray much from that price tells you how the market treats them almost like bonds.

No one’s going to offer much more than $25 for a share that could be called, and no one’s going to sell so valuable a revenue-producing asset for much less than $25. Note that the issue price is also the p🌟rice that the company will call the share at, should it choose to.

Another point to note is that the “澳洲幸运5官方开奖结果体彩网:floating rate” means the dividend payout changes according to criteria determined by the issuer. For example, the rate may be tied to a rate like SOFR.

The Bottom Line

Among intermediate and advanced securities, preferred stocks carry a relatively small learning curve and less chance of risk. You’re less likely to go bankrupt with preferred shares than with com🐲mon shares.

So should you invest in them? Understand that most preferred shareholders are institutional: organizations that have little to gain and much to lose by putting their funds in anythin♕g ♏less stable than a bond or bond equivalent.

For the everyday investor, buying preferred shares is usually something done once you’ve already established a decent-sized portfolio. One that was probably, at least in part, the result of buying undervalued common stocks. If you're still interested, though, consider a preferred stock exchange-traded fund (ETF).