Different Types of Preferred Stocks : NobleTrading Blog

Friday, December 12, 2008

Different Types of Preferred Stocks

There are many different types of preferred stocks, classified according to the type of preference they carry. Know more about preferred stocks. Some companies may issue more than one type of preferred stocks; usually named as group 1, group2 … stocks.

According to the term of maturity there are 3 types of preferred stocks.

Straight or Perpetual preferred stocks: They have no maturity date, they offer lifetime dividend payments.
Term or Retractable preferred stocks: They have set maturity date, e.g. five years.
Soft-retractable preferred stocks: Offer the issuer the power to cash (or to converted to equities) the stock after a specific date but with certain limitations.

According to preferences, there are many types of preferred stocks.

Cumulative Preferred stock: Gives the holder the right to accumulate missed dividend payments (which are skipped by companies due to financial problems).
Participation Preferred stock: Gives the holder the right to receive higher than normal (fixed) dividend when the company makes larger profits.
Convertible Preferred stock: Gives the holder the right to convert it into a fixed number of common stocks irrespective of market price.
Adjustable rate Preferred stock: the dividend is not fixed; it is tied to Treasury bill rate or other rates. Payments are calculated based on an established formula.
Exchangeable Preferred stock: Gives the holder an option for exchange the stock for some other security (need to satisfy certain conditions).