Bob Brinker's Marketimer

  Friday November 24, 2017

Next Marketimer © Mailing Date: November 6th


© 1997-2017
Privacy Policy

Hosted by:
@ ADPAD INC.




WHAT ARE SOME ADVANTAGES AND DISADVANTAGES OF OWNING PREFERRED STOCK?

By now, you probably can list a number of possible advantages and disadvantages associated with owning preferred stock. On the positive side, preferred stock offers these positives:

•Less risk than common stock

•More reliable income than common stock

•Generally cumulative dividends

•Preferential treatment in the event of a liquidation, compared to common stock

Some negatives for preferred stock include the following:

•Generally lower total returns than common stock

•Possibly no vote for company officers or on key issues

There are a few other potential disadvantages you should be aware of.

First, since preferred stock pays a fixed dividend and does not rise in value as much as common stock, the preferred stockholder does not usually share in the full rewards of a company's success to the same extent as the owner of common stock. Of course, the opposite is also true: the preferred stockholder doesn't share in as much risk as the common stockholder, either.

Second, the fixed dividend could be a problem if you hold preferred stock for a long period. Inflation can lower the value of your return, while the common stockholder is protected by the more rapidly rising value of his shares in the marketplace.

Third, preferred stock can be less liquid, i.e., harder to sell. There is usually more demand for common stock.

Finally, like many corporate bonds, some preferred stock is callable. The company may be able to redeem your preferred stock for any reason. The call price is usually specified in the issue. However, once a preferred is called, all future dividends will cease.

Despite the disadvantages, many investors decide that the advantages outweigh them. Preferreds can help investors diversify their portfolios and balance the fluctuations of their other investments.

Every type of investment has both advantages and disadvantages. That is part of the challenge?and fun?of investing!




LEARN EVEN MORE WITH THE ENCYCLOPEDIA OF PERSONAL FINANCE. CLICK HERE!

Powered by


Copyright 1999-2017, Precision Information, LLC. All Rights Reserved