What is preferred stock is the first question many people ask when they hear about it whether it is in a news story or a stock tip. The definition for preferred stock is a stock which pays a set dividend rate which has preference in being paid before any dividends are paid to investors in common stock. This pay first concept is what gives preferred stock its name. However, most preferred stock carries no voting rights.
Different types of preferred stock include:
Cumulative Participating Preferred Stock
--Preferred stock that accumulates any dividend that is not paid such that all back dividends must be paid before common stock dividends can be paid, and which participates in additional company profit via common dividend as well.
Non-Cumulative Participating Preferred Stock
--Similar to Cumulative Participating Preferred Stock except that if a dividend payment is missed, it is simply lost and will not be made up.
Non-Participating Preferred Stock is only paid the stated dividend regardless of company profits and payment of higher dividends to other stockholders.
Convertible Preferred Stock
--In addition to being paid the stipulated preferred dividend, the stock may be converted into a certain number of common stock shares.
Adjustable-Rate Preferred Stock
--While the dividend rate still holds preferred payment status, the amount of the payment varies depending upon current interest rates.
While no one investment is best for everyone, some preferred stocks are more highly valued by certain investors. Until recently, high-yield bank preferred stock was frequently sought after.
Here is a list of some preferred stocks and their yields, that Warren Buffet bought during the last couple of years.
General Electric Preferred Stock – GE Preferred Stock Yield is 10% for Warren Buffet’s Investment (no GE preferred stock is available to the public.)
Goldman Sachs Preferred Stock Coupon Yield Is 10% For Warren Buffet’s investment.
Note that Warren Buffet’s recent investment in Harley Davidson was actually in a bond offering and not in preferred stock.