WHAT ARE SOME ADVANTAGES AND DISADVANTAGES OF OWNING
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
More reliable income than common stock
Generally cumulative dividends
Preferential treatment in the event of a liquidation, compared to
Some negatives for preferred stock include the following:
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
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.
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