Are prefered stocks "Fixed dividends"


Is it correct to say prefered sotcks have fixed dividends? Form what i’ve read in the curriculum to calculate de price you just divide D/TYM.

Is the dividend of preferred always the same amount (example $1 per share) or it can change? if it changes, is it normal that the dividend changes or is much less common than in common stocks?

Thanks for your help!

In general, yes. I’d like to think of preference share as a pseudo-bond.

However, a type of preference share, called participating preference shares allows the company (issuer) to distribute more dividend to the shareholder if the company’s earnings or profits have increased.

Note that the dividend actually paid can change if the company does not have enough cash to cover the dividend. In that case there would be “dividends in arrears” that typically must be paid before any dividends to common could be paid.

Only if it’s _ cumulative _ preferred.

For noncumulative preferred stock, only the current year’s dividend must be paid before common dividends can be paid.

Yes to the first question.

Yes, in general. However if the investor holds a participating preferred stock, he can earn additional dividends.

Preferred Stock have fixed dividends and, although they are never guaranteed, the issuer has a greater obligation to pay them. Common stock dividends , if they exist at all, are paid after the company’s obligations to all preferred stockholders have been satisfied.

Preferred Stock have fixed dividends, normally for the life of the stock, but they must be declared by the company’s board of directors. As such, there is not the same array of guarantees that are afforded to bondholders. This is because bonds are issued with the protection of an indenture. With preferreds, if a company has a cash problem, the board of directors can decide to withhold preferred dividends; the trust indenture prevents companies from taking the same action on bonds. Another difference is that preferred dividends are paid from the company’s after-tax profits, while bond interest is paid before taxes. This factor makes it more expensive for the issuing company to issue and pay dividends on preferred stocks.

Types of Preferred Stock

Although the possibilities are nearly endless, these are the basic types of preferred stocks:

Cumulative : Most preferred stock is cumulative, meaning that if the company withholds part, or all, of the expected dividends, these are considered dividends in arrears and must be paid before any other dividends. Preferred stock that doesn’t carry the cumulative feature is called straight, or noncumulative, preferred.

Callable : The majority of preferred shares are redeemable, giving the issuer the right to redeem the stock at a date and price specified in the prospectus.

Convertible : The timing for conversion and the conversion price specific to the individual issue will be laid out in the preferred stock’s prospectus.

Participating : Preferred stock has a fixed dividend rate. If the company issues participating preferreds, those stocks gain the potential to earn more than their stated rate. The exact formula for participation will be found in the prospectus. Most preferreds are non-participating.

Adjustable-Rate Preferred Stock (ARPS): These relatively recent additions to the spectrum pay dividends based on several factors stipulated by the company. Dividends for ARPSs are keyed to yields on U.S. government issues, providing the investor limited protection against adverse interest rate markets.

I hope this will help. smiley yes