How to Find Preferred Dividends
Preferred stocks pay dividends at a fixed and regular rate, like bonds and unlike common stocks. Preferred stockholders also are guaranteed payment before common stock holders (although after bond holders) and preferreds usually are "cumulative," meaning that, if a company cannot or does not issue dividends during a certain period, preferred stockholders are guaranteed dividend payment in the future. In the event of liquidation or bankruptcy, preferred stockholders are paid after creditors and bondholders but before common stockholders. Preferred stock also has the advantage of usually being convertible. There are special ticker symbols to look for when considering preferred stocks.
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Instructions
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Learn to identify preferred stock. There are online sites dedicated to preferred stocks or you can identify preferred stocks on stock market and exchange tickers. There is an entire alphabetic vocabulary dedicated to identifying companies, stock prices, price increases/decreases, volume, and classes and statuses of stocks. To locate a preferred stock, look for a particular letter in the ticker parade of symbols. For example, if ACME Holdings is identified as "ACME" (this would be NASDAQ because it's a four-letter company symbol) and is followed by a "P," then you know it is a 1st Class preferred stock. The "P" would appear on any exchange as a fifth symbol "after the dot" and appear as: "ACME.P." Other preferred stock designations are "O" (second class), "N" (third class) and "M" (fourth class). Other letters also may appear, signifying voting rights, convertibility and Class A or B status.
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Calculate a preferred dividend by multiplying the par value by the dividend percentage. For example, if the par value is $100 per share and the dividend percentage is 5 percent, the dollar value of the annual dividend is $5. Preferred stock valuation is determined by dividing the dividend (preferred dividend rate times the par value ) by the preferred stock required return. For example, if the par value of a stock valued at $100 is 8 percent, and the required return rate is 10 percent, the price of the share of preferred stock is $80 (.08 x 100 = 8 divided by .10 = 80).
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Study the advantages and disadvantages of preferred stocks. As already mentioned, preferred stockholders enjoy fixed and regular dividend payments and are paid before common stockholders. Preferred stocks have fixed-income properties similar to bonds and usually are cumulative and convertible. However, although preferred stocks are less volatile than common stocks, they are more risky than bonds. They also have lower long-term return rates than common stocks (though higher than bonds) and lose value a quarter of the time (compared with 20 percent for bonds), according to the Winans International Preferred Stock Index. Preferred stocks also don't have the tax advantages of bonds; dividends are treated as taxable income.
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Open a brokerage account, either online or through a discount or full-service brokerage house. Placing orders and buying common stock is no different than procedures for purchasing common stocks.
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Tips & Warnings
Check out utilities if you're interested in preferred stocks. Because of the unique quasi-governmental nature of utilities and the rate-setting process under which they operate, utilities offer preferred stock at a much higher rate than private firms.
Although most preferred stocks are cumulative, they are not inflation adjusted. So even though you're guaranteed your dividend payment at some time in the future, you'll be getting paid in current, non-adjusted dollars.
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