Market MakeHer Podcast 7. For the Income Investors: What is a Preferred Stock?
Jul 11, 2023
Dive into the intriguing world of preferred stocks, a unique blend of bonds and common stock! Learn how these hybrid securities offer the stability of fixed payments and preferential treatment in dividends. Discover essential terms like par value and the significance of investment-grade ratings. The hosts break down real examples like AT&T to illustrate key concepts. Plus, explore convertible preferreds and why they might be the right choice for income-focused investors. Get ready to demystify your investment journey!
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Preferred Stocks Are Hybrid Securities
- A preferred stock is a hybrid between a bond and a common stock, combining interest-like payments with equity features.
- Jess Inskip describes it as "a common stock and a bond had a baby," capturing the blended nature.
AT&T Example And Dividend Math
- AT&T's common stock pays a high dividend yield around 7% based on current price and quarterly payouts.
- Jess Inskip walks through the math showing $0.2775 per quarter equals $1.11 annually and a ~6.96% yield on a $15.95 close.
Par Value And Fixed Income Traits
- Preferred shares carry a par value (commonly $25) similar to bond face value and pay fixed dividends like coupons.
- Jess Inskip contrasts this with bonds' $1,000 par and explains preferreds act as fixed-income securities.