How to Buy Preferred Stocks Online

Good Investing Requires Patience

Buying preferred stock online is an easy way to invest with low commissions and similar prices found by full-service brokers. Preferred stock comes in many variations, and it is important that you be an informed investor before buying preferred stock. Research call features, credit ratings and the attractiveness of price before buying preferred stock. Online brokers usually only act as agents (matching buyer and seller) not as principals (selling from their own portfolio), so you must do your own research.compare

Instructions

1. Open a online account with a full-service broker. Not all brokerage houses offer preferred stocks. Fund the account, but expect to wait several days for paperwork and funds to clear.

2. Use the free research available through the broker you use. Use reputable information sources for information on trading. Never use any free Internet information without confirming that information elsewhere.

3. Buy preferred stocks with knowledge as to the type of preferred you want. Convertible preferred, cumulative preferred, straight preferred and non-voting preferred all have different investment characteristics. Buy only investment-grade stock (rated BAA-1) or higher.

4. Know what preferred you want when you go online. Compare the preferred yield (make certain the payments are not in arrears; they should be current) with the yield of a similarly rated 10-year corporate bond by the same company. If not the same company, then compare it to a company in the same industry. The yields should be similar. Consider the current yield (annual dividend divided by current price) of similar preferred by credit and industry.

5. Be aware of the tax situation for preferred stock. Preferred stock has different tax rates depending on the purchaser of the stock. Use an accounting professional to guide your choice of security. Your online broker should NOT be regarded as the first-line reference for this information. Contact an accountant.

6. Consider convertible preferred stock if your ultimate aim is to be a conservative stockholder willing to give up some upside in return for higher current yield. Convertible preferred is usually listed in a special section of the online brokerage list of offerings.

7. Ascertain the nature of the call feature. Be certain the stock will not be called anytime soon. Beware of buying preferred stock at a premium because it might be called on just 30 days' notice. Online brokerages should have this information in the preferred stock listing.

Tips & Warnings

• Buy preferred stock after researching data carefully. Preferred stock is not actively traded.

• Preferred stock is traded thin, meaning it is not traded in large amounts with moving prices substantially.