How to Get a Preferred Dividend

Purchase preferred stock for a guaranteed dividend.

Preferred shares are hybrid financial instruments with elements common in both stocks and bonds. Purchased from a company that offers the shares in return for funding, the preferred stock offers no voting rights, but it does offer a set dividend payment instead. This dividend payment is an agreed upon amount, set at the time of the stock issuance, and is what makes the instrument perform much like an income bearing bond. Receiving a preferred dividend is a simple process that depends mostly on the right timing. As long as you purchase the stock before the dividend is declared, and you’re on the company record sheets as a stock holder, you’re likely to collect on the dividend for that year.

Instructions

1. Purchase the preferred shares before the ex-dividend date of the stock dividend. Preferred shares are typically purchased during an IPO initial public offering of the stock as the company raises funds, but you can also purchase preferred shares from a stockbroker.

2. Wait for the date of record to arrive. This is the day the company examines its records to determine which investors are holders of records. Holders of record are those shareholders who are on the company books at the time that they’re reviewed.

3. Check your mail for an information sheet to arrive on the declaration date of the dividend, which is the date that the company announces the dividend along with dividend details. The preferred dividend amount is preset, but on the declaration date, the board of directors of the company will also announce any dividends payable to common shareholders as well as the payment date of the dividends. The dividend amount is based on the coupon rate of the stock, which is multiplied by the stock’s liquidation preference per share. Both the coupon rate and the liquidation preference per share are available in the stock prospectus received when purchasing the stock.

4. Wait for the announced payment date to arrive. On this date, the dividends are paid to those preferred stock holders who purchased the stock prior to the ex-dividend date.

References

• Dividend Detective: Preferred Stock
• Accounting Coach: Preferred Stock
• Quantum Online: What Income Investors Should Know