Redeemable Preferred Stock

Not of a strong finance undergrad, so wanted to know what exactly these are. What is the advantage to the firm for issuing them and the investor for buying them? And what is the “sinking fund” associated with them?? Thanks everyone!!

80% of preferred stock dividends are exempt from taxation on the investor side (making it very attractive to avoid taxes), but from the issuer side, dividend payments are not tax deductible, making it a more costly way to raise capital. Since PS dividend payments are from profits after taxes, they’re not tax deductible unlike other debt instruments. The redeemable part gives the issuer the option to forcefully buy back the stock at a certain time and price, just like retiring a callable bond.

Thanks Wessun! What about the “sinking fund”? Is that associated with issuing Redeemable PS, or have I got that wrong? Also, what are “bonds issued with warrants”? What exactly are warrants? How are they a more hybrid sort of instrument, as opposed to pure equity or pure bonds? Thanks a mill!


I like wikipedia better