What Are Stocks?
Stocks are equity investments that represent ownership in a company. Stocks can also go by the name of “shares” or “equities” which essentially mean you are a (part) business owner. Purchasing company stock comes with certain rights which may include receiving a dividend as well as voting rights at shareholder meetings.
- Preferred stock have a “ coupon rate ‘ – the interest rate you will be paid. This interest rate remains constant on most–but not all, preferred issues. A small number of issues have a rate that “floats,” based upon a baseline such as Libor.
- Dividends are either cumulative — meaning that dividends continue to accrue if they have been suspended, but they are not paid until the company decides to pay them after suspension — or non-cumulative. Non Cumulative means they do not continue to accrue (they are gone forever). In either case if the dividends are suspended the company is likely in deep financial trouble.
- Dividends are generally paid quarterly, although a few pay them monthly.
- Preferred shares normally carry no voting rights (unlike common shares).
- Preferred shares generally have NO maturity date (most are perpetual).
- Most Preferred Stocks have an optional redemption period in which the shares may be redeemed, at the issuer’s option, generally five years after issuance, but may be more or less.