Preferred Stock

Fixed dividends and payment priority #

When it comes to dividends, preferred stockholders have a definite advantage over common stockholders.

As the name implies, preferred stockholders have priority over common stockholders when it comes to receiving dividends. They get their cut of the pie first, before any dividends are paid to common stockholders.

The beauty of preferred stock is that it comes with a fixed dividend rate, which means that the company has to pay the same dividend amount to preferred stockholders every year. Unlike common stock, the dividend amount on preferred stock does not fluctuate with the company’s earnings or profits.

But wait, there’s a catch! The fixed dividend rate means that preferred stockholders may miss out on any increase in dividends if the company performs exceptionally well. The company cannot increase the dividend amount on preferred stock even if it wants to.

In the event that the company goes bankrupt, preferred stockholders have a better chance of getting their money back than common stockholders. Preferred stockholders are at the top of the payment priority list, which means that they get paid before common stockholders.

Now, let’s add a touch of humour to this. Preferred stock is like being the favourite child of the company. You get a fixed allowance every year, and you get paid before your pesky little brother (common stock). But sometimes, your parents (the company) may surprise you by giving your brother a bigger allowance than you, just because he did well in school (the company’s profits).

No voting rights or ownership #

First of all, let’s define what we mean by “no voting rights or ownership.” Essentially, this means that you own a piece of the company’s stock, but you don’t have any say in how the company is run. You can’t vote on board members, executive compensation, or any other major decisions.

So, why would anyone want to invest in this type of stock? Well, for starters, these stocks often come with lower fees and expenses than stocks with voting rights. Plus, since you don’t have any ownership, you’re not liable for any of the company’s debts or legal troubles.

Another benefit is that companies can issue these types of stocks without diluting the voting power of existing shareholders. This means that companies can raise money without risking a takeover or losing control of the company.

But let’s be real, the real reason some people invest in stocks with no voting rights or ownership is that they just like the company and want a piece of it. Maybe you’re a die-hard fan of a certain brand or product, and you want to invest in the company just for the fun of it. Or maybe you’re looking for a speculative investment that could pay off big if the company does well.

Of course, there are also some downsides to investing in stocks with no voting rights or ownership. You won’t have any say in the company’s decisions, which could be frustrating if you disagree with management’s choices. And since you don’t have any ownership, you won’t benefit as much if the company’s stock price skyrockets.

Callable and convertible options #

A callable option is like a pirate’s parrot, it can be called back by the issuer at any time before the option expires. This means the investor may not get to enjoy the full benefits of the option if the issuer decides to exercise their right to call it back. However, this feature can be advantageous for the issuer who may want to take advantage of changes in the market.

On the other hand, a convertible option is like a mermaid that can transform from a fish into a human. It gives the investor the option to convert their investment into another type of security, usually common stock. This can be helpful if the investor thinks the common stock will perform better in the future. But just like a mermaid, the conversion may not always go smoothly and the investor may end up with a hybrid security that is not quite what they expected.

Both callable and convertible options have their risks and benefits, so it’s important for investors to weigh their options (pun intended) and do their due diligence before investing. Always remember to keep your eyes peeled for any hidden fees or potential risks lurking beneath the surface.

Examples of companies with preferred stock #

If you prefer some guaranteed income and less risk, then preferred stock might be the treasure you seek!

Unlike common stock, preferred stockholders are paid a fixed dividend, which means they receive a set amount of money on a regular basis regardless of how the company performs. It’s like having a steady income stream, even in the midst of a wild storm.

Some examples of companies that have preferred stock include banking and financial institutions, such as JPMorgan Chase & Co., Wells Fargo & Co., and Goldman Sachs Group Inc. These companies often issue preferred stock to raise capital and maintain their financial stability.

But be warned, matey! Just like any investment, preferred stock has its own risks and potential drawbacks. While the fixed dividends might sound like a dream come true, it also means that you might miss out on potential growth opportunities if the company performs exceptionally well. And if the company struggles financially, preferred stockholders might have a lower claim on assets compared to bondholders or creditors.

So weigh the risks and rewards, and don’t forget to do your research before setting sail on the high seas of preferred stock investing!