Preferred Dividends: A Stable Investment in Financial Stress
In times of financial stress, companies prioritise preferred dividends. These dividends, fixed and higher than common stock dividends, attract investors seeking stable income. They accumulate if missed and must be reported in financial statements.
Preferred dividends are calculated by multiplying the dividend rate by the par value of the preferred stock. They are paid to preferred shareholders before common shareholders, ensuring priority. This is crucial as they must be paid before any profits are distributed to common shareholders.
Callable preferred stock offers higher dividends, while convertible preferred stock has lower rates. The preferred dividend coverage ratio assesses a company's ability to pay these dividends. Despite preferential treatment, preferred stockholders may not share in excess earnings.
Preferred dividends, with their fixed rates and priority, are an attractive investment option. They accumulate during financial strain and are a key consideration in a company's financial health on the stock market.
