Preferred Stocks – Fixed to Floating or Floating Rate

Preferred shares are shares issued by a corporation as part of its capital structure.

Further Definitions 

How do You Buy Preferred Stocks?

You buy Preferreds just like you would any stock.  Put in an order in your brokerage account and wait.  The prime difference with preferred stocks is most trade very ‘thin’ (little volume) so you should always use ‘limit’ orders or you may pay way more than is necessary for your shares.

Fixed to Floating Rate Issues

Below are what we call ‘Fixed to Floating’ preferreds.  They are issued with a fixed rate that typically lasts 5 years (a few 10 years) and then they go to floating rate.  The rate then typically is 3 month libor (currently .93% as of 12/7/2016) plus a stated rate.

Floating Rate Preferred

These issues have floating rates from the day they are issued and always contain a floating rate formula with an overriding minimum coupon, usually 3-4.5%.  Most of these issues use 3 month libor as part of the equation and add a fixed rate to 3 month libor.

As of 5/2017 most fixed to floating rate preferreds are trading higher after issuance.  This is because we are now in a interest tightening phase and income investors are trying to assure there future income stream by capturing higher floating rate coupons in the future.



Bryan Perry

Limited-Time Free Report:

Collect a Fat Dividend Check Every Month from the World's Biggest Companies (without having to buy their expensive shares)

Get my top monthly dividend payer... a company boasting a dividend yield of more than 10%, and whose portfolio holdings feature some of the biggest and most successful companies on the planet (Google, Apple, Nike, etc.). Simply enter your email to claim your free report.