Preferred Stock and Interest Rates

What this video covers

• Why preferred stock has no maturity date and therefore cannot pull to par, making its interest-rate risk potentially greater than a bond with the same coupon
• How preferred stock prices move inversely with interest rates, and why new issuance yields drive demand for existing shares
• Why current yield (annual dividend divided by market price) is the primary yield measure for preferred stock, and why yield to maturity (YTM) does not exist
• How buying preferred stock at a discount to par pushes current yield above the stated dividend rate, while buying at a premium pushes it below
• The characteristics and tradeoffs of fixed-rate preferred, adjustable-rate preferred, and callable preferred in different interest-rate environments
• Why adjustable-rate preferred offers price stability through dividend resets, while fixed-rate preferred absorbs full interest-rate risk
• Why callable preferred caps upside when rates fall, since the issuer will likely call and reissue at a lower dividend rate