By: Tim McPartland,
Callable – see redeemable below. Sometimes used to describe a ‘redeemable’ issue.
Change of Control – If a company is bought or someone purchases a controlling interest many preferred stocks have provisions for holders to redeem their shares (circumstances vary).
Contingent Voting – In certain circumstances preferred shareholders receive a vote–typically after dividends have been suspended for some predetermined amount of time.
Convertible Preferred Stock – Shares that can be converted into a fixed number of common shares of the issuer.
Credit Rating – see rating below.
Cumulative – If the issuer suspends payment of dividends they continue to ‘accumulate’ and must be paid prior to any distributions on the common shares.
Floating Rate – The interest rate paid on the issue ‘floats’, typically after a period of fixed rate payment. Normally based upon 3 month Libor plus a fixed rate, reset quarterly.
Mandatory Redemption -A few issues have mandatory redemption dates (essentially a maturity date).
Non Cumulative – If the issuer does not pay a dividend it is gone forever (typically used by banks and insurance companies).
Participating Preferred – Preferred shareholders receive a coupon rate, plus a ‘participation’ in profits. These are rare.
Perpetual Stock – Shares have no maturity mandated. Likely can be ‘redeemed’ by the issuers 5 years after issuance (at the issuers option).
Preferred Stock – Ownership in a corporation without voting rights. Has characteristics of both bonds and stock. Normally pays a fixed interest rate. Ranks senior to common stock, but is junior to all debt in a liquidation situation.
Qualified Dividends – Eligible for a lower tax rate (either 15 or 20%).
Rating (Credit Rating) – Like a bond many preferred issues are rated by S&P, Moodys and/or Fitch. This is not always the case and most REIT preferreds are not rated.
Redeemable – Shares can typically be ‘redeemed’, at the issuers option, 5 years after issuance. Some issues have ‘redemption’ periods as soon as 1 year after issue and some as long as 10 years after issue.
Registered Investment Company (RIC) – A RIC is a domestic corporation that groups funds from more than 100 investors for the purpose of investing. The investment Act of 1940 created RIC’s as a way for small investors to gain professional management and more diversified investment possibilities. A RIC is required to distribute 90% of their taxable ordinary income and short term realized capital gains
Term Preferred Stock – Having a specific mandatory redemption date.