Let's talk about Preferred Shares

Many of you may have heard about Preferred Shares which are different to the Common Shares that investors generally deal with.

What is a Preferred Share?

Important points:

• Preferred Shares are similar to bonds, it's a loan to the company that gives you fixed % payments. However, unlike bonds, Preferred Shares can have no maturity dates and investors can be trapped for a long time.
• This also means that Preferred Shares don't necessarily go back to the par value after some time like bonds.
• Go through the Certificate of Designation carefully.
• Preferred shares are not as liquid (not as easy to exit). Most individual investors won't come across Preferred Shares.
• Payments to Preffered Shares can be delayed (for Cumulative Preferred Shares) or not paid at all (non-cumulative Preferred Shares). Non-cumulative Preferred Shares therefore don't make much sense for most investors.
• Preferred Shares are Callable, and the company can pay you back your money to end the agreement when it wants to after the Call Date. A high yield Preferred Share is more likely to be called.
• The amout you get paid can be adjustable as well.
• In the event of a liquidation, bond holders get paid first, then the Preferred Shares, Common Shares get paid last. 
• Raising fund through Preferred Shares avoids the need of diluting equity of existing Common Share holders.

Find information on Preferred Stocks

www.quantumonline.com - Income Table - All Preferred Stocks

Important points:

• Watch out when you see "suspended" dividend in red. This means that the company has stopped paying Preferred Share holders.
• Look for cumulative preferred.
• Look for relatively long call date into the future.
• Bear in mind that the actualy yield depends on the price you pay for the Preferred Shares. The listed yield is only applicalble if you purchased the shares at the original price.