How to Calculate the Annual Dividend on Preferred Shares
Preferred shares of stock are ownership equity securities just as regular (common) stock shares. However, preferred shareholders don't have voting rights at stockholder's meetings and preferred shares usually have less growth potential. Investors buy preferred shares because they pay guaranteed annual dividends. Strictly speaking, you don't calculate the annual dividend on preferred shares because it's determined when the shares are first issued. However, you should be able to calculate the income and yield provided by a preferred stock.
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Instructions
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1
Look in the prospectus of the preferred stock issue you are interested in to find the annual dividend. There may be more than one issue of preferred shares for a particular company. These will be listed according to their dividend rate or date of issue in the annual report. You can obtain the annual report and preferred stock prospectus online on the company's Investor Relations website or by asking your broker.
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2
Calculate the annual dividend for a given number of preferred shares. For example, if the shares were originally issued at $50 a share with a 6 percent dividend, the annual dividend per share is 0.06*$5 = $3.00. If you have 1,000 shares, that works out to $3,000 in dividend income per year. Dividends are usually paid quarterly, so you would get a check for $750 every four times each year.
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3
Calculate the annual yield of the preferred shares. The price of preferred stock varies depending on market conditions. The yield is the actual rate of interest you earn and depends on the price paid for the stock. If the shares in the example in Step 3 are purchased for $40 a share instead of the original $50 a share, the yield is $3.00 a share divided by $40, or 0.075. Multiply by 100 to express as percentage yield (7.5 percent).
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Tips & Warnings
Although preferred shares carry less risk than common stock, they are not risk-free. Always read the company annual report carefully and research any company thoroughly before investing.
Check the terms and conditions of the preferred shares as described in the prospectus. Preferred stock can have a number of features you should be aware of before investing. For example, some preferred shares can be converted into common stock. Others can get additional dividends over and above the guaranteed amount if company performance warrants the additional payment.
