What You Need to Know About Preferred Stocks

This article will give you insights into what you need to know about preferred stocks. The stock market is one of the most favored forms of investment anyone looks at when they want to invest. That’s because, in general, stocks are considered ‘safe’ and clear to most investors that are investing firsthand in companies.

But, when it comes to investing in stocks, you want a stock that will guarantee you profit and at the same time not look risky.

So, companies will also try to find ways to lure investors without looking desperate. When a company goes for bonds, they’ll look desperate, so they’ll go for preferred stocks. So, what do you need to know about preferred stocks before getting involved with them?

Preferred Stocks

No Right to Vote

You’ve probably heard that stockholders get to vote when it is time to elect a board. But with preferred stocks, that’s one right you don’t have. When it comes to voting rights for shareholders, only those with common stocks have the right to vote.

ADVERTISEMENT

So, if you’re looking to make a change to the corporation when it comes to electing board members, getting your hands on preferred stocks isn’t the way to vote.

They Are Rare Today

In most cases, companies are under no set obligations to offer dividends on common stocks. You may be wondering how that affects the preferred stocks. In today’s world, most companies would rather avoid the idea of an ‘obligation’ to pay dividends. So, they’d instead offer common stocks for sale.

As such, you’ll find that the heavy hitters in the market today have no option for preferred stock in the market. Most of the others then follow suit, making it quite rare to come across preferred stocks today.

They Are Majorly Treated As Bonds

Preferred stocks are majorly treated as bonds because their pricing is never far off from each other. One of the primary reasons they are also treated as bonds is because most people will go for the ones with the highest dividends.

They also don’t come in cheap – the high dividend shares. The other thing is that the issuer determines the payout of the dividends issued. The process is known as a “floating rate.”

They Are Better During Bankruptcy

During a bankruptcy of the company you have shares in, the one with the preferred shares gets a payout. The payout comes in after the company liquidates, and you as the ‘bondholder’ are entitled to a payout since you are a creditor.

Creditors get paid when the company goes under. For common stockholders, they’re like the owners of the company. This means they aren’t entitled to pay; they can be paid off in case there’s some money left after the preferred shareholders are paid.  

How to Find Them

Preferred stocks are the ones with ticker symbols. The symbols are listed in the normal alphabets – one letter suffix. The shares are offered in different classes; always ensure you know the number of classes in your state before moving forward.

Conclusion

The differences between preferred stocks and common stocks are quite clear to see. And while they are becoming rare, preferred stocks are there, and all you can do is look. By knowing what you need to know about preferred stocks, you can be sure to make the right choice when the time comes. And, if you want to specifically learn about preferred stocks that pay high dividends, click here.

ADVERTISEMENT