Talk:Preferred stock

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why companies prefer the prefered stock holders over the common stock holders to pay the dividend and other benifits? How so (i.e in the US and in Canada)?

I don't know, but comparing it to the previous sentence, I think this sentence is about government-owned entities issuing preferred stock. Every preferred stock I know of is issued by a private company, although the preferred stock issuers Fannie Mae and Freddie Mac aren't as completely private as they might be. Art LaPella 20:35, 22 June 2006 (UTC)[reply]

should preferred stock less or more ?

I don't understand the question. Is preferred stock better or worse than common stock? Neither - it depends on whether you value safety over a chance to get rich. Or does it mean should the article be longer? Art LaPella 19:26, 18 April 2006 (UTC)[reply]

Under what conditions can preferred stock holders vote? —Preceding unsigned comment added by 207.235.20.226 (talk) 22:52, 23 April 2009 (UTC)[reply]

Whenever the prospectus says they can vote. Usually, preferred stock holders can only vote if the dividend hasn't been paid lately. A few old preferreds, like Kansas City Southern preferred and various Pacific Gas and Electric preferred securities, include voting rights, but in my experience they only vote on directors (a Soviet-style "election" with only one candidate per position) and approving the accounting firm. Only common stockholders get to vote on anything that matters, like shareholders' rights. Like all my answers, this answer is US-centric because my experience is US-centric. Art LaPella (talk) 04:30, 24 April 2009 (UTC)[reply]

Users[edit]

does only private companies issue prefered stock? —Preceding unsigned comment added by 202.83.170.98 (talk) 09:25, 11 December 2007 (UTC)[reply]

In the US, yes, if you consider Fannie Mae and Freddie Mac to be private. Art LaPella (talk) 21:47, 11 December 2007 (UTC)[reply]


"...government regulations and the rules of stock exchanges discourage the issuance of publicly traded preferred shares"

As far as Canada goes, this is simply wrong. There is a very healthy population of preferred shares trading on the Toronto Stock Exchange ... I suspect that this statement, if it has any truth at all, applies only to the US, a market with which I am not familiar. JiHymas@himivest.com 21:08, 3 July 2006 (UTC)[reply]

Only/generally[edit]

The statement that preferred shares are only in financials, REITS, etc. is wrong. I presently hold HOVNP, the preferred stock of a homebuilder (not a REIT). I worked at a small high tech company that, in a time of distress, issued preferred "D" series shares at a million dollars or so par value, to gain funding to stay alive. These "D" shares were given extraorinary voting and liqidation rights (basically, they sold out the common holders to the "D" holders in exchange for capital infusion). When that wasn't enough, the "D" holder voted us into liquidation and took the Intellectual Property of the company during liquidation. (Microsoft was the holder of this "D" series. They got a great patent library as part of this deal...). So U.S. preferreds have many issuers and many uses, some defensive in takeovers, some offensive. Chiefio 16:26, 21 March 2008 (UTC) —Preceding unsigned comment added by 4.246.21.190 (talk) 15:23, 21 March 2008 (UTC)[reply]

I didn't find a statement that preferred shares are ONLY in financials, REITS, etc. Perhaps you meant the first sentence of Preferred stock#United States: "In the United States issuance of publicly listed preferred stock is generally limited to financial institutions, REITs and public utilities." (emphasis added - generally, not only). Look over this list (I'm not sure if you can get in without registering) of typical U.S. preferred stock and see if you don't think "financial institutions, REITs and public utilities" is a good description of most of the list. Art LaPella (talk) 18:31, 21 March 2008 (UTC)[reply]

US Issuers[edit]

The explanation regarding US Issuers is informative, but is similar to the situation in Canada. The Canadian market has developed because of the dividend tax-credit and gross-up, which effectively taxes dividends at a lower rate than interest when received by the security holder. Thus, although pre-tax returns are generally lower with preferreds, after-tax returns have historically been greater. How does this relate to the US situation? JiHymas@himivest.com 00:30, 9 August 2006 (UTC)[reply]

Par value[edit]

"Preferred stock has a par value or liquidation value associated with it. This represents the amount of capital that was contributed to the corporation when the shares were first issued."

What is this? Par value is an amount set by the articles of organization or bylaws (need research as to which one) as to the value of the preferred stock. The proceeds actually contributed to the corporation is almost always higher than the par value, especially since we're talking about preferred stock here (and not common stock). The proceeds actually collected for the issuance of the stock is actually: Par value + Additional-paid-in-capital. APIC has not even been discussed in the article. --RoshSok 18:11, 18 February 2007 (UTC)[reply]

Can you give an example of an issue in which the issuance price was greater than the Par Value? Such an issue would be, at best, extremely rare in Canada. The terms would also have to be carefully described in the prospectus to avoid running afoul of the deemed dividend taxation rules on redemption. jiHymas@himivest.com 69.158.153.2 04:48, 22 February 2007 (UTC)[reply]

How about the US preferred stock Northrop Grumman preferred B, stock symbol NOC-B, CUSIP: 666807300, prospectus link [1], par value $1.00, issuance price $100, present value around $140. Or, see Realty Income Corp., 7 3/8% Preferred D, symbol O-D, CUSIP: 756109609, prospectus link [2], par value $1.00, issuance price $25, present value closer to $26. Art LaPella 05:38, 22 February 2007 (UTC)[reply]
Quite right - although I confess I only looked at the Northrop Grumman link, and I will note that two examples aren't very many. I suggest the quoted text (and the next bulletted point in the "Rights" section) be changed to emphasize that par value and liquidation value are not necessarily identical, at least not in America. Is there any reason (legal, taxation or customary) why this should be the case, at least for some American corporations? jiHymas@himivest.com 216.191.217.92 16:01, 22 February 2007 (UTC)[reply]
In my experience par value has no significance to investors or traders or their taxes. But a little web surfing turned up this quote: "Since your annual Delaware franchise taxes are based on your number of shares and their par-value, it is best to keep both of these as low as you can." [3] Delaware is the most popular state for incorporation, so par value affects the issuer's taxes. Art LaPella 20:35, 22 February 2007 (UTC)[reply]
Thank you! I've discussed this on my blog. jiHymas@himivest.com 216.191.217.92 22:09, 22 February 2007 (UTC)[reply]


I'm an attorney that deals with the issuance of preferred stock by privately held (venture backed start-ups) on a weekly basis, and par value is always a fraction of a cent, whereas the issue price is typically no less than several dollars. The section is not only overly broad, its completely incorrect. I can produce preferred stock certificates from literally dozens of companies that show this to be true. As to the dividends point, this to is flat out wrong. Dividends are calculated based on the issuance price, not the par value. This can be seen in any number of Certificates of Incorporation, which are public documents and can be obtained from the DE Secretary of State. Also, NVCA.org, the National Venture Capital Association, provides Industry standard sample documents (http://www.nvca.org/index.php?option=com_content&view=article&id=108&Itemid=136). The sample Certificate of Incorporation clearly shows that Dividends on preferred shares are calculated based on ISSUANCE PRICE (see footnote 4 on the second page for discussion on par value, see page 4 for section on dividends) — Preceding unsigned comment added by 208.255.90.221 (talk) 20:17, 31 October 2011 (UTC)[reply]

As a trader I also make a living on this stuff. My experience is limited to securities I can trade; "the issuance of preferred stock by privately held (venture backed start-ups)" is probably unlisted, so that would account for different experiences. In my world, "par" has two conflicting meanings: one is a legal fiction whose purpose you presumably understand better than I do, which is unrealistically low, and which is often dispensed with; and the other is liquidation value (same as issuance price in my experience). These two meanings are demonstrated in this prospectus for Alabama Power Co., 5.20% Class A Cumulative Preferred Stock, symbol ALP preferred N. The par value is $1 per share (not "always a fraction of a cent") and it refers to some older Alabama Power preferred as "ALABAMA's Preferred Stock (par value $100 per share)", the issue price. Here's the beginning of a list of the sort of thing I trade, with links to prospectuses (I'm not sure you can read the list without registration, which is free). Often the par value isn't mentioned at all. Sometimes it's $1 or a few cents. Sometimes it means the liquidation value, but I didn't find an example of a prospectus using the phrase "par value" to mean the liquidation value of the security described in that specific prospectus. However, "par value" can also mean liquidation value in financial discussions like these. I agree that when a dividend is expressed as a percentage it means percentage of the issuance price, but par value often means the same thing. Art LaPella (talk) 22:25, 31 October 2011 (UTC)[reply]

Tier 1 Capital Question[edit]

As I understand it, a bank may issue prefs to count towards its regulatory capital. Are there any requirements regarding what it may do with these funds? Can it only be held in cash (call accoutns for example)? Zain Ebrahim 08:52, 5 June 2007 (UTC)[reply]

Not that I'm aware of. It may not count as Tier 1 capital, however, but as Tier II. There may also be limits on how much of a bank's capital (for regulatory purposes) can be made up of preferred. It will depend on the structure of the preferred. Search for Basel accord regulatory capital for more info.--Gregalton (talk) 22:10, 11 December 2007 (UTC)[reply]

External Links: Perpetuals vs. Retractibles[edit]

I am fascinated to learn that an editor considers the article at about.com (http://beginnersinvest.about.com/cs/newinvestors/a/091602a.htm) superior (http://en.wikipedia.org/w/index.php?title=Preferred_stock&diff=170963262&oldid=170962876) to my explanation (published by third-party print media) of the difference between perpetuals and retractibles (http://www.himivest.com/media/moneysaver_0606.pdf). Any explanations and suggestions for future improvements will be greatly appreciated. jiHymas@himivest.com 216.191.217.82 (talk) 17:07, 23 November 2007 (UTC)[reply]

prefered stock preference[edit]

it is known that in world a company prefered to give dividend to the prefered stock holder instead of common stock holder. why companies prefer them on common stock holders? —Preceding unsigned comment added by 202.83.170.98 (talk) 09:30, 11 December 2007 (UTC)[reply]

It's partly definitional: if they weren't "preferred" over common stock holders, they wouldn't be preferred. Put another way, preferred shareholders get certain advantages over common stock holders (seniority of dividends, usually "fixed" dividends in some sense) in exchange for giving up something else (like the right to vote their shares, but usually also the right to a pro-rata share of assets, earnings, etc). Conversely, common stock holders give advantages to preferred shareholders in exchange for not giving up other things, like a larger share of profits.--Gregalton (talk) 09:50, 11 December 2007 (UTC)[reply]
Preference shares are lower risk than ordinary shares. If company becomes liquidated, preference stock holders are paid FIRST before ordinary stock holders and other creditors. Moneyprobs (talk) 09:57, 1 August 2008 (UTC)[reply]

Canadian Issuance in 2005[edit]

It appears that a user deleted a broken link; the broken link has now been republished by svetoid. The broken link is http://www.ida.ca/Files/Media/MediaRelease/General/MRG2006020601_en.pdf and the working link is http://www.ida.ca/IDAWebsite/Files/Media/MediaRelease/General/MRG2006020601_en.pdf jiHymas@himivest.com 216.191.217.82 (talk) 21:37, 15 February 2008 (UTC)[reply]

Tel Aviv Stock Exchange[edit]

On the other hand, the Tel Aviv Stock Exchange prohibits listed companies from having more than one class of capital stock.[citation needed]

Nonsense. According to the TASE: A listed company that has one type of shares may issue or allocate shares only of the type listed for trading. A listed company whose capital includes different types of shares can allocate shares of the preferred type, in terms of voting rights. See http://www.tase.co.il/TASEEng/Listings/FollowOnOfferings/

The Industrial Development Bank of Israel Limited has four classes of capital stock listed. See http://www.tase.co.il/TASEEng/General/Company/companyDetails.htm?subDataType=0&companyID=000606&shareID=00606095 One of these classes has voting privileges - the other voting class issued by the company does not trade on the exchange. jiHymas@himivest.com 67.71.178.87 (talk) 00:45, 22 March 2008 (UTC)[reply]

Further: See the IDBI's form 20-F (at http://www.sec.gov/Archives/edgar/data/50277/000117891306001301/zk62585.htm ) filed with the SEC 2006-7-17: THE TRADING ON THE TEL AVIV STOCK EXCHANGE IN OUR ORDINARY PREFERRED SHARES AND CERTAIN CLASSES OF OUR PREFERRED SHARES MAY BE RESTRICTED AND THESE SHARES MAY EVENTUALLY BE DELISTED. 

    Our preferred ordinary shares, our C, CC, and CC1 shares and our capital notes are traded on the Tel Aviv Stock Exchange (TASE).

jiHymas@himivest.com 67.71.178.87 (talk) 01:03, 22 March 2008 (UTC)[reply]

Certificate of Designation[edit]

Terms of the preferred stock are stated in a "Certificate of Designation".

Huh? Never heard of it. I suspect this terminology is unique to the US. In Canada, terms of public preferred stock will be stated in a prospectus. One example of a "Certificate of Designation" may be found at http://www.sec.gov/Archives/edgar/data/1102542/000110465903023055/a03-4160_1ex3d1.htm ;

jiHymas@himivest.com 69.158.148.160 (talk) 05:44, 28 March 2008 (UTC)[reply]

I'm an American trader, and I've never heard of a Certificate of Designation either—but they do exist according to this Google search. In the U.S., terms are also stated in a prospectus like this one. However, when I searched that document for the unfamiliar phrase "Certificate of Designation", I found it. Art LaPella (talk) 06:38, 28 March 2008 (UTC)[reply]
Oh, I have no doubt that "Certificate of Designations" do exist IN THE UNITED STATES ... after all, I linked to one! I have been unable to verify the existence of such a thing in any other country ... as a quick counterexample, see the prospectus for a CIBC issue at http://www.cibc.com/ca/pdf/investor/preferred-shares/series-32-prospectus-en.pdf (other prospectuses for this firm's current issues available via http://www.cibc.com/ca/investor-relations/share-info/preferred-shares/preferred-dividends.html ; any other Canadian prospectus for the last ten years or so is available via http://www.sedar.com jiHymas@himivest.com 216.191.217.82 (talk) 15:46, 28 March 2008 (UTC)[reply]
That's apparently right - I Googled "Certificate of Designation" with SEDAR and got a short list of securities registered in both countries. Art LaPella (talk) 19:07, 28 March 2008 (UTC)[reply]
Um ... what is apparently right? Are you agreeing with my point that "Certificates of Designation" are unique to securities listed in, or governed by the laws of, the US, or are you agreeing with the article as written, which asserts that the terms of issue of all preferred stock, issued anywhere, are stated in a "Certificate of Designation"? jiHymas@himivest.com 69.158.148.69 (talk) 05:56, 29 March 2008 (UTC)[reply]
I agree that "Certificates of Designation" are unique to the US. Art LaPella (talk) 19:18, 29 March 2008 (UTC)[reply]

UK Gilts[edit]

Are they governement versions of 'preference shares' or something different altogether? They are safest of all stocks and much safer than stockmarket, i know that much, but can they be compared with preference shares? Moneyprobs (talk) 09:59, 1 August 2008 (UTC)[reply]

Only in a very narrow sense, that preference shares (some types, anyway) are a form of fixed income instrument (i.e. one that pays regular cash payments to the owners). Gilts (or UK government bonds) are more like regular corporate bonds, but issued by a government. Since governments are usually considered to have higher credit quality than private corporations, they are usually considered safer than corporate bonds. Some argue that they are 'risk free' in the sense that government could, in theory, confiscate all private property to pay its debts or simply print as much money as needed to pay the bondholders.--Gregalton (talk) 10:18, 1 August 2008 (UTC)[reply]
Yes, Gilts are Government bonds and carry very little credit risk. A company's preferred stock is less risky than its equity but more risky than its corporate bonds. So, in liquidation, debtholders are paid out first, then preferred stock holders, then equity holders. Hope that helps. Also, for future reference, you can also use the Reference Desk if you have factual questions that you need answers to. Zain Ebrahim (talk) 10:35, 1 August 2008 (UTC)[reply]

hi —Preceding unsigned comment added by 66.211.69.246 (talk) 01:03, 22 November 2008 (UTC)[reply]

Google Search[edit]

Should we be referencing a Google search query? That doesn't seem a proper source that can be cited Evaders99 (talk) 02:31, 17 July 2009 (UTC)[reply]

I don't have much experience with "proper source"s, but long ago that reference settled an argument; some preferred stock does carry a voting privilege, even though that is unusual, especially for preferred stock issued more recently. Is that reference better than nothing? Art LaPella (talk) 17:17, 17 July 2009 (UTC)[reply]
I don't think a google search query is appropriate. I removed it in one of my last edits.--Glinos (talk) 08:54, 10 December 2009 (UTC)[reply]
Then hopefully this guy won't show up again with an unchanged opinion. Art LaPella (talk) 23:04, 10 December 2009 (UTC)[reply]

Rewrite or Reorganization[edit]

Does anyone think that this page should be rewritten and reorganized? All the information is bunched together in the rights and users section. For starters, I think the rights section should be changed to something like "Characteristics".

The large list of countries and some random tidbit of preferred stock info seems out of place. The size of the section should at least be shrunk down to a table or a bullet-list.--Glinos (talk) 09:02, 10 December 2009 (UTC)[reply]

When I write too much text I get rewritten and reorganized, so this article is mostly from others. I'm a Wikipedia copyeditor who trades preferreds in real life. Anyway, I thought this article had an opposite complaint about US-centrism, but I can't find it now. Art LaPella (talk) 23:46, 10 December 2009 (UTC)[reply]
I should clarify. What I meant to say in terms of size, was not referring to the number of words or text, but the screen space that the section is taking up. Information about international preferreds is lacking and more info needed. --Glinos (talk) 05:06, 11 December 2009 (UTC)[reply]
Sounds good. WP:LAYOUT#Paragraphs says "Short paragraphs and single sentences generally do not warrant their own subheading". Although my trading experience is strictly U.S., including a few foreign securities in U.S. markets. Art LaPella (talk) 06:16, 11 December 2009 (UTC)[reply]

Errors in the Formulae[edit]

Errors have crept into the formulae about the cost of Preference Share Capital.

1) The two formulae given for the Cost of Preference Share Capital without flotation are identical, save for the fact that the second formula has an error in it -- it is missing a closing bracket in the numerator. Here is how the formulae are at present (07/Feb/2010):


When there is no flotation cost at the issuance
OR


Here is how the formulae must be (just one formula, not two identical formulae):


When there is no flotation cost at the issuance


2) There is a minor error in the formula given for the Cost of Preference Share Capital with flotation -- it is missing a closing round bracket in the numerator. Here is how the formula is at present (07/Feb/2010):


where there is Flotation cost at the issuance


Here is how the formula must be:


where there is flotation cost at the issuance


If no one would object to the above I could amend the text to correct these errors, otherwise I will leave it to the more knowledgeable to correct the errors. Plamen Grozdanov (talk) 11:48, 7 February 2010 (UTC)[reply]

Glossary[edit]

I am new to preference shares, but it seems this article is missing good explanations or definitions of the terms I see used, for example:

  • redeemable - either means holders of the share can demand the return of the par value paid plus the sum of any dividends in arrears (see [4]) or its opposite (see 1.2 i in [5]). The latter sense appears to be the same as "Callable at the option of the corporation."

The terms "callable" and "redeemable" need to be explained, and maybe any UK US differences highlighted. -84user (talk) 20:28, 28 April 2011 (UTC)[reply]

My experience is with the U.S. stock market. Never before have I seen a security like the Malaysian security linked above. To me, "redeemable" or "callable" always means "callable at the option of the corporation", usually after 5 years. See "redeem" in Quantum Online's glossary for instance. Art LaPella (talk) 01:21, 29 April 2011 (UTC)[reply]

Hmmm, the Australians define redeemable more flexibly here, pages 2 and 3: "Redeemable preference shares under the Corporations Act (section 254A(3)) are shares which are issued on terms where they are liable to be redeemed at: 1. a fixed time ... of a particular event; or 2. at the company's option or at the shareholder's option." It is possible the Malaysian share uses redeem to mean at the shareholder's option. From the little I have seen of UK preference shares so far, the meaning is at the company's option. -84user (talk) 15:18, 12 May 2011 (UTC)[reply]

"of a particular event" sounds familiar; assuming it resembles U.S. securities, it means an event like a takeover or an adverse tax ruling. But the "or at the shareholder's option" clause is completely outside my experience. I can't even imagine how it would work in practice. Perhaps there is a rule that prevents an arbitrageur from buying at $25 on Monday, and then redeeming it at $25 on Tuesday if it drops to $24.90; if instead it rises to $25.10, he sells and takes the profit. If there is no such rule, the security would usually vanish in the first few weeks, and companies wouldn't offer the security under such terms. Art LaPella (talk) 17:58, 12 May 2011 (UTC)[reply]

Venture Capital application[edit]

Almost all US venture capital investments are made in the form of preferred stock. The shares always have voting rights, typically have special protections and the emphasis on dividends is much lower. Dividends are rarely paid and frequently don't even accumulate if unpaid. With 3000+ VC financings a year, this seems like an area of preferred stock that should be covered here. I'm tempted to take on a substantial edit here, but I'm a real newbie to Wikipedia. Any advice? — Preceding unsigned comment added by Runjohnnyrun (talk • contribs) 03:28, 9 January 2012 (UTC)[reply]

Confusing description[edit]

"any combination of features not possessed by common stock including properties of both an equity and a debt instrument, and is generally considered a hybrid instrument": this description is completely useless to someone, like me, who doesn't already know all about stocks. Can the introduction be rewritten to be comprehensible to laymen? MirkMeister (talk) 09:52, 23 July 2014 (UTC)[reply]

Mobile view[edit]

Is it just me or is the mobile view of this article screwed up? This is the first Wikipedia article that I've encountered that didn't have sections hidden from view and accessible from drop-down arrows. 2600:1:D413:C317:42F6:3080:F8EC:8CBE (talk) 08:46, 12 May 2017 (UTC)[reply]

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If only financial institutions can buy preferred stock - could you list what a financial institution is defined as ( ie banks, ??? What is the yield difference between preferred and common under different scenarios - good times bad times, recession, depression, bankruptcy, etc Thanks 2601:181:8301:4510:1450:8C41:5914:AE0D (talk) 05:18, 6 February 2018 (UTC) 0.[reply]

Business Studies[edit]

Describe 5 types of preference shares.. 41.113.33.164 (talk) 10:29, 29 May 2022 (UTC)[reply]

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