How to Purchase Preferred Shares
Investors often are familiar with common stock. Common stock allows for fractional ownership of a company with benefits such as voting on company business and, if the board of directors authorizes, a dividend. Preferred stock works more like a perpetuity. For the cost of the share of stock, a preferred holder is generally guaranteed a dividend indefinitely. However, preferred stock does not generally have a vote at shareholder meetings and may be converted to common stock by the board of directors.
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Instructions
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Open an investment account at a brokerage firm. Each brokerage firm has a unique fee structure and service offering. It is important to research each type of account, including minimum opening balance requirements, to find the best fit for your needs. You can find a great list of reviews from the respectable publication Forbes on their website. Some of the most popular brokerage firms include E-Trade, Charles Schwab, and Sharebuilder (see Resources).
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Research companies that offer preferred stock. If you are reading a company's financial statements, preferred stock always is listed on the balance sheet. If you find a preferred stock you are interested in purchasing, it is best to read the prospectus first. Look into voting rights, dividend payout rate, conversion, and whether the stock is callable. Also note that in the event the company fails, you may not be compensated for your holding.
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Purchase the stock. Buying preferred shares is the same as buying common shares. Just enter the ticker symbol on your brokerage website to execute the trade. Make sure you have enough money in your account before entering the purchase.
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Tips & Warnings
Only buy preferred shares for companies that are financially stable. Like common stock, the value can fluctuate and your investment may become worthless if the company fails.
Companies can suspend preferred dividend payments in the event the company is under financial hardship, as voted on by the board of directors. Generally, the company will make a catch-up payment at a later date, but that is not always the case.
References
Resources
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