Preferred Stock
Chapters in this video
- 0:00 The voting rights trade-off and why investors buy preferred stock
- 1:07 Preferred stock as a hybrid: fixed dividends and liquidation priority
- 2:42 Inverse interest rate sensitivity and the bond-like pricing trap
- 3:08 The six types of preferred stock overview
- 3:36 Straight and non-cumulative preferred: no catch-up for missed dividends
- 4:09 Cumulative preferred and the arrearage calculation
- 5:26 Participating and convertible preferred: extra upside, lower yield
- 6:33 Callable preferred: call risk and why issuers win when rates drop
- 7:31 Rapid-fire exam recap
What this video covers
- Why preferred stockholders give up voting rights in exchange for fixed dividends and higher liquidation priority than common stockholders
- How the fixed dividend rate works, why it is not a guaranteed payment, and how skipping it differs from a bond default
- Why preferred stock prices move inversely with interest rates, just like bonds, rather than with the overall stock market
- How cumulative preferred stock accumulates arrearages and why all unpaid arrearages plus the current dividend must be paid before any common dividends
- Why non-cumulative preferred stock offers no catch-up for skipped dividends, making it less protective for investors
- How participating and convertible preferred stock both carry lower stated dividend rates because investors pay upfront for the extra upside features
- Why callable preferred stock benefits the issuer, not the investor, and how call risk exposes investors to losing favorable income streams when rates fall
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