Preferred Stock
Chapters in this video
- 0:00 The VIP party: preferred versus common stock
- 1:46 Cumulative preferred and dividends in arrears
- 3:12 Noncumulative straight preferred stock
- 3:42 Participating, callable, and convertible features
- 4:28 Floating rate preferred: the interest rate exception
- 5:10 Convertible preferred math: conversion price and value
- 6:40 Preferred stock versus bonds: legal equity distinctions
- 7:41 Dividends received deduction (DRD) tiers and tax traps
- 9:02 Rapid-fire exam recap
What this video covers
- Why "fixed dividend" on preferred stock describes the rate only, not a guaranteed payment, and why the board must still declare each dividend
- How cumulative preferred stock accumulates dividends in arrears, and why those arrears must be paid before any common dividend is permitted
- Why a missed preferred dividend is never a default, unlike a missed bond coupon, and why arrears earn zero interest
- When straight (noncumulative) preferred stock means skipped dividends are permanently forfeited, not owed later
- How floating rate preferred stock flips the interest rate sensitivity of typical preferred, making it less sensitive rather than more
- How to calculate conversion price from par value and conversion ratio, and why convertible preferred always trades at the higher of investment value or conversion value
- The dividends received deduction (DRD) tiers for corporate investors: 50%, 65%, and 100%, and why the issuing corporation gets no tax deduction for preferred dividends paid
Read the full lesson, free
This video's complete written lesson is free to read in the CertFuel app, no signup wall. The complete Series 66 course also includes adaptive practice questions and spaced-repetition flashcards.