Preferred Stocks: Why You Should Buy Them

Joseph Herrera May 7, 2018 Comments Off on Preferred Stocks: Why You Should Buy Them
Preferred Stocks: Why You Should Buy Them

Common stocks are called common stocks because they are the most common stocks around the market. They offer a lot of benefits to their owners. One such benefit is having some voting powers to influence the management’s decisions.

However, there is also another kind of HQBroker Reviews stock that you might want to consider. These are not so common, but they are still preferred by many investors.

Of course, there are also disadvantages to it, like not having voting powers and such. However, we’ll focus more on the good things you could get from such stocks. There are a lot, but we’ll only need three to convince you.

Advantage number 1: the dividend payments are regular

When we say preferred stocks, we’re not really referring to a simplistic Forex Bonus kind of stock. As a matter of fact, preferred stocks do not only possess a stock’s qualities.

Preferred stocks can be considered as a hybrid of bonds and stocks. This is because owning preferred stocks enables you to receive regular dividend payments. And what’s more, these payments are very typically higher than the amount that common stock holders receive.

This means that your income will come to your pocket more regularly. Lastly, the company is also obliged to pay you any missed preferred stock dividend payment.

Advantage number 2: You’ll get paid first in the event of bankruptcy

This is perhaps one of the most attractive feature of owning preferred stocks. In case the company made a grave mistake and took the wrong turn down the abyss, you will get paid first before common stockholders.

This event is not something many investors want to happen but it does happen. As a preferred stockholder, you have to right to receive payments before any other stockholders get theirs.

Advantage number 3: You get to have some tax advantage

Most of the time, a company can obtain tax reductions against the amount of the interest paid on bonds. However, it cannot do that on the dividend payments paid via preferred stocks.

This is because the company pays the dividends on both common stocks and preferred stocks through its after tax profits.

However, you can still obtain a certain kind of tax advantage from some corporations that invest using preferred stocks in the stock market. This kind of preferred stock advantage is called dividend received deduction. This can help the corporation from becoming overtaxed within a venture.

Last Word of Warning: Risks

As we have mentioned, preferred stocks also sport risks that are inherent to them.

For one, you don’t have any voting rights. This means that you cannot influence any of the management’s decision. So even if you already see the boat sinking, you can only watch and hope for the best.

Meanwhile, some companies also have the so-called call provision, which lets the company redeem the preferred stock on demand. More often than not, a company redeems its preferred stocks when the current interest rates drop, making the market price of the preferred stocks soar high.

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