Why Investors Love Preferred Stocks?

It is often seen that many big firms and organizations cut their dividend payments to their shareholders to conserve cash. For investo...


It is often seen that many big firms and organizations cut their dividend payments to their shareholders to conserve cash. For investors who own the common stock of that organization, the cut in dividend payments meant a part of returns that they had expected to receive was entirely lost. However, in contrast, the investors who own the preferred stock are protected from the dividend cuts. Unlike common stock, preferred stock has a dividend payment fixed over time.

When a company failed to pay dividends, the investors of preferred stock have the first priority, in making up for lost dividend payments over investors of common stock. Although preferred shares, do not provide the returns as high as on common shares, the fixed dividend payments make them more attractive to the investors than common shares. On top of that by investing in preferred stock, the investors can also have the benefit of convertibility that allows them to their preferred stock into common stock.

Here, we’re going to discuss the preferred stock, advantages, and why investors Did love prefer stocks so much?

PREFERRED STOCKS

If you are a regular income-oriented investor looking to find security where you can get regular income then preferred stock is one such financial security worth to invest in. It is a type of security which possesses the characteristics of common stock as well as debt. That’s what it a type of hybrid security that can be used to generate incomes period.

Preferred stocks carry fixed dividends which issue by financial institutions. Preferred stock can have several advantage and disadvantage. For instance, the preferred stocks have fixed dividends but like bondholders, the preferred stock investor has no voting rights. For that reason, a company that wants to raise capital but do not want to dilute the ownership of common stockholders or company’s reported earnings can decide to issue preferred stock.

Investors who are looking to invest in preferred stock can find the listed companies on exchanges like the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE).

WHY INVESTORS LOVE PREFERRED STOCKS?

Undoubtedly, fixed regular income is the first reason why investors love preferred stocks so much. These financial securities offer more attractive dividend yields than other financial securities. A second most common reason is the safety that firms and organizations provide to preferred stock investors in paying fixed dividend payments in a timely manner. And the last but not least, the affordability to actively participate in preferred stocks.

If we talk about the issuance then the preferred stocks are not only different from other financial securities but also distinguishable security amongst them. For instance, preferred stock may be issued as a convertible stock that allowed the investor to convert his/her preferred shares to the company’s common shares. Apart from this, there are certain other provisions that make preferred stocks different from other financial securities.

The only thing that worries investors is their susceptibility to high-interest rates and inflation. Just like fixed income securities when the interest rates go up, they go down. Preferred stockholders may not have the voting rights but they do hold ownership in the company. In fact, they can use several investment strategies where each strategy can be used to meet a different financial goal.

For instance, most preferred shares pay quarterly dividends but monthly income preferred stock (MIPS) offer dividends on a monthly basis. It also has a very good yield. So, an income-oriented long-term investor can take the benefits of investing in MIPS. Apart from this, the preferred stockholders can also get the benefit of preferred trading on interest rate swings and speculating turnarounds.
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FINAL THOUGHTS: -

No doubt! Preferred shares can make an attractive investment for all those who are looking to invest in long-term and regular dividend payments as they’d receive in bonds and dividends from common stocks. Preferred stocks genuinely have a good following of investors who can take the benefits of investing in them.

There are other plenty of benefits of investing in preferred shares but only a few investors are aware of. However, these benefits may vary from preferred stock to preferred stock. There is an option clause that allows investors to buy back the shares at a fixed price or to convert preferred into common stock.

Hope, this article helped you in a way you expected it to be. Nevertheless, if you have any query or would like to suggest something or have a query then doesn’t hesitate to mention in the comment section below.

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