Value Investing

Preferred Stocks Investing

Writing this blog about dividend growth investment strategy, I had to write about preferred stocks investing. One can say a preferred stock is a hybrid. It may be half a common stock and half a bond. Preferred stock are those stocks that give regular stable dividends. They provide top priority over all other stocks. Common stocks cannot be paid dividends, until the complete dividend payment of preferred stocks has been completed, and in the event of bankruptcy, the preferred stock gets aid out first. During bankruptcy, the only party whose importance supersedes that of preferred stockholders is that of bond holder. Their repayment comes at the highest priority.

Preferred Stocks Investing

Each company will have a unique way in which it will classify its preferred stocks. And the possibility of the terms of preferred stocks differing from one country to another is relatively high. What may be common though, is the distinction of whether the preferred stocks are cumulative or non-cumulative. In a cumulative preferred stock, the unpaid dividends add up, i.e. they accumulate. They become dividends in arrears and the stockholder is entitled to the entire payment at the next possible dividend disbursement. The non-cumulative preferred stocks however are the opposite. If a dividend payment is omitted, then there will be no accumulation of that amount on to the next dividend payment. They will have to forego that installment.

Preferred stock may or may not come with voting rights. In the most common of cases, it is the common stocks that bear voting rights. There are instances where companies decide to award voting rights to preferred stocks to replace dividend payments.

The most logical question then becomes; should one invest in preferred stock? In all honesty the potentials of preferred stock investment are different between individuals and corporate portfolios. It may be difficult for a single person to see the benefit of investing in these over common stocks. This is because the federal law taxes income tax on the entire dividend received. With companies, Federal tax laws require them to only pay income tax on 30% of their preferred dividends, leaving the remainder tax free.

From here now we can close with the other minor type of preferred stocks.

Adjustable rate preferred stock

These stockholders receive adjustable dividends. The amount of dividends paid depends on a various number of factors communicated by the company at the time of the initial offering.

Participating preferred stock

This type of preferred stock receives an extra dividend on top of the usual one based on a stipulated percentage of either net income or dividend paid to stock holders of common shares.

Convertible preferred stock

These type of preferred stocks are tradeable for shares of common stocks. A stock holder has the advantage of weighing the dividend income or common stock profit. His investment has protection from the fall of either one. All the conditions to which the stock can change from one form to another are already in place.

Value Investing

The Truth About Stocks

There are several notions as to how stock trade operates. Here is the truth about stocks i invested in. Many know what stocks are however they are not quite sure about the behavior of stocks and how they can either be your gateway to a new life, or your complete downfall. In this article we will enlighten you on that facts about stock that we are sure every potential investor should know.

What is stock?

Stock is a partial ownership of a company that is acquired in the form of shares. With share one becomes entitled to a portion of the assets, earnings, trademarks, and patents of the company. The buying and selling of stocks happen on a stock exchange market where brokers either bring buyers and sellers together, or they partake in the entire transaction. 

Facts about stock.

There are two types of stock.

In most cases, there exist who types of stocks; that is common stocks and preferred stocks. Common stock are the most common, and they come with voting rights at annual meetings. Preferred stocks rarely come with voting rights, however they receive regular dividend payments.

There are stock sectors within the stock market

Stock are bought and sold on a stock market. The stock markets can be physical or virtual. Brokers facilitate the transactions by either bringing buyers or sellers together, or they may conclude the whole transaction on behalf of their client.

Dividend are one way for investors to make money

Preferred stocks receive dividend payments. This is one assured long term way in which an investor can make money off of the purchase of shares. Dividends may either be accumulative or non-accumulative.

Stock splits are aimed at lowering the price of stocks

In order to lower the price of their shares, companies may split their shares. This would then make the share in actual fact, cheaper. The most common known share split is a 2-1 split.

Common stocks come with voting rights

Common stocks bear the advantage of voting rights. In most cases, one share will equal one vote. If the company intends to hold the voting rights at a certain level, they will create classes within the common shares, of which one class of shares will have more voting rights than another.

Common stocks are highly liquid

It is fairly simple to buy and sell common stock. They are considered highly fluid. In order to achieve short term profitability, an investor may buy common stocks when they are low priced and quickly sell them when their value goes up.

Preferred stocks receive preferential treatment

In the event of bankruptcy, preferred stocks are the ones that are paid off first, after bond repayments have been cleared. Also, in terms of dividends, preferred stockholders receive their dividends first, before common stockholders get theirs. It is thus I some cases considered best to have preferred stock over common stock, however in other instances such as liquidity, common stocks are often the better choice.

Finally, the truth about stocks

It is not that hard to learn about finance. The best way to learn about investing is to read a lot about the subject and educate yourself. Follow us on Facebook to keep yourself up to date with our articles.