📘 Learn about preferred stocks & preferred shares
A friendly, plain-English guide to preferred stocks (also called preferred shares) and baby bonds — what they are, how their dividends and prices work, the risks, and how to read every figure on this site. Pick a topic or just scroll through.
In-depth guides
Standalone deep-dives on the questions income investors ask most. Each guide stands on its own.
🧭 What is a preferred stock (or preferred share)?
A preferred stock — also called a preferred share — is a kind of investment a company issues that sits between its bonds and its common stock. The two names mean the same thing. The key perk: preferred shareholders get paid their dividend before common shareholders, and they stand ahead of common stock (but behind bonds) if the business is ever wound up.
Most preferred shares trade on a stock exchange at around a $25 face value and pay a fixed dividend on a set schedule — usually quarterly, sometimes monthly. People buy them mainly for steady, predictable income rather than growth.
🏛️ Preferred shares vs. common stock vs. bonds
Preferred vs common stock → · Preferred vs bonds →
Think of who gets paid first if money is tight. Preferred shares sit right in the middle:
Higher on the ladder = paid sooner and safer. Preferred shares are the steady middle.
🏷️ Par value & liquidation preference
The par (or liquidation preference) is the face value of a preferred share — usually $25, sometimes $50, $100 or $1,000. It's the amount you're owed per share if the issue is redeemed (called) or the company is liquidated. The dividend is set as a percentage of par — the coupon. A 6% preferred on $25 par pays $1.50 a year.
The market price drifts around par. Where it sits — below (a discount) or above (a premium) — is one of the most important numbers for an income investor:
Buy below par and there's upside if it returns to $25; buy above par and you can lose that premium if it's called.
📊 Yield, price & discount to par
Current yield is just the income divided by what you pay for it:
Because the dividend is fixed, a lower price means a higher yield — and vice-versa.
So a preferred trading below par yields more than its coupon and can gain if it's redeemed at par; one above par yields less and risks a loss if it's called away at par.
A preferred bought below par can pay you two ways at once — the price can climb back toward its $25 par, and it pays a dividend the whole time you wait. Here's a one-year scenario for a share bought at $20 with a $25 liquidation preference:
The appreciation isn't guaranteed — a share only "pulls to par" if it's redeemed/called or the market bids it back up. But the dividend pays you to wait, and the discount is your built-in upside.
💵 Dividends: cumulative vs. non-cumulative
Cumulative vs non-cumulative → · If a dividend is suspended →
If the company ever skips a payment, what happens next depends on one word — cumulative:
A skipped dividend is still owed to you. It piles up and must be paid in full before the company pays its common shareholders a cent. Safer for you.
A skipped dividend is gone for good — you never get it back. Common on bank preferreds.
A suspended dividend means payments have stopped (on a cumulative preferred, they keep accruing). The ex-dividend date is the cutoff: own the share before the ex-date to receive the next payment.
🔀 Fixed, floating & fixed-to-floating (reset) rates
Most preferreds pay a fixed rate for life. Some are floating-rate — the dividend resets off a benchmark (like SOFR). Many are fixed-to-floating (or fixed-rate reset): a fixed rate for a while, then it switches to a floating/reset rate on a set date.
📞 Call risk, call date & yield-to-call
Callable preferred explained →
Most preferreds are callable: the company can buy them back at par, usually starting about five years after they're issued — the call date.
If you pay a premium and the issue is then called, you lose that premium. Yield-to-call (YTC) and yield-to-worst (YTW) show the return assuming it's redeemed — for an above-par, currently-callable issue, YTW (not current yield) is the honest number.
🔄 Convertible & mandatory convertible preferreds
A convertible preferred can be exchanged for the company's common stock, so its price often tracks the common rather than just the dividend. A mandatory convertible must convert into common on a set date — it's really an equity bet paying a high temporary dividend until conversion. (Heads-up: many ordinary preferreds carry a limited change-of-control conversion — a takeover protection — which is not the same as being a true convertible.)
🍼 Baby bonds (exchange-traded debt)
A baby bond is debt in disguise — a bond issued in small $25 pieces that trades on the stock exchange just like a preferred share. It pays interest (not a dividend), has a stated maturity date when the principal is repaid, and ranks ahead of preferred shares. Because it's debt, the interest must be paid or the company is in default — which makes baby bonds generally safer than the same issuer's preferred shares.
🧺 Preferred stock ETFs & funds
A preferred-stock ETF (like PFF, PGX or PSK) holds a basket of hundreds of preferred shares — diversified income without picking individual issues. A fund has no single coupon, par or call date, only a price, a yield and a distribution. Closed-end funds (CEFs) are similar but trade at a premium or discount to their net asset value.
⚠️ The main risks
- Interest-rate risk — preferred prices fall when interest rates rise.
- Call risk — an above-par issue can be redeemed at par, capping your upside.
- Credit risk — a weak issuer can suspend dividends (or, for baby bonds, default).
- Dividend suspension — most likely on non-cumulative bank preferreds during stress.
- Liquidity risk — thinly-traded or OTC/delisted issues can show stale prices.
📖 Glossary — every field on a security page
- Current Yield
- Annual income ÷ today's price — what you'd actually earn buying now.
- Annual Dividend / Interest
- Total cash paid per share each year (a preferred pays a "dividend"; a baby bond pays "interest").
- Original Coupon
- The annual rate set when the issue was sold, as a % of par (6% of $25 = $1.50/yr).
- Liquidation Preference (Par)
- Face value owed per share — usually $25.
- Recent Market Price
- The latest trade price from the market feed.
- Disc/Prem to Par
- How far the price sits below (discount) or above (premium) par.
- Capital Appreciation to Par
- The potential gain if a discounted preferred's price rises back to par — par minus price, shown in dollars and as a % of today's price. (A premium has none — instead it carries pull-to-par risk.)
- Pull to Par
- The tendency of a redeemable or maturing security to drift toward its par value as the call or maturity date approaches — a gain for discounts, a loss for premiums.
- Pay Frequency
- How often it pays — usually quarterly, sometimes monthly or twice a year.
- Recent Ex-Date
- The last ex-dividend date; own it before this date to get the payment.
- Cumulative
- Whether skipped dividends are still owed (cumulative) or lost (non-cumulative).
- Redeemable / Call Date
- Whether — and the first date — the issuer can redeem it at par.
- Maturity / Mandatory Conversion
- The repayment date (baby bonds) or forced-conversion date (mandatory convertibles).
- Convertible / Conversion Price & Ratio
- Whether it converts to common stock, and on what terms.
- Yield to Call (YTC) / Yield to Worst (YTW)
- The return assuming the issue is called; YTW is the conservative number.
- Float Formula
- The reset/floating-rate terms for fixed-to-floating issues.
- Issued / Series
- The offering's settlement date and the specific series, taken from the SEC filing.
Educational information only — not investment advice. Every structural figure on this site is verified against the issuer's SEC filing; market data is delayed.