Preferred Stocks – Fixed to Floating or Floating Rate

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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 2% as of 3/2018) 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 2/2018 most of these issues may be “safe” issues, but the coupons are substandard.

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 their future income stream by capturing potential higher floating rate coupons in the future.




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Tim McPartland

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Tim McPartland
Tim McPartland is a private investor with over 45 years of investing experience. His analysis, research and writing is devoted to the hunt for income producing securities of all types, but in particular specializing in preferred stocks, exchange traded debt and Master Limited Partnerships.
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