You will find a security which different from each other. This investment is like a hybrid between bond and equity. It gives you dividend but you have no right to vote. Therefore, you cannot participate to decide corporate steps. There is an exception on a case. If company skips the dividend, the preferred stock holder will have voting power. Corporate also promises fixed portion income. If you buy a common stock, you will have the one vote. This investment called preferred stock. This investment may call as convertible bonds, perpetual, etc.
If you bored with stock, you can change preferred stock to stock or bond. The company will give you conversion rate after count market value of bond and stock. You may also consider the profit whether you change or not because all that investment has the strength and weakness.
You can deny tax when you buy preferred stock. You have to pay tax because government will charge tax to every dividend that company paid. If company loses, they do not have the obligation to pay dividend. The fail of dividend paid by company does not make this company bankruptcy or default.
Preferred stock is also profitable too. The Company will give investor fixed portion dividend. The Corporate will priority preferred stock than common stock. The Corporate will exclude 70% to preferred stock. You should know corporate will priority to pay bond because they should pay interest coupon or company bankrupt.
Unlike common stock, the corporate does not issuing preferred stock at Initial Public Offering (IPO). The Corporate issues preferred stock with corporate bond.
Besides preferred stock, there is a product same like preferred stock. The product is adjustable rate preferred. The rate of preferred adjust to current market interest (Fed rate) like adjustable rate mortgages (ARM).
As an investor, you may consider this investment on your portfolio. You must always remember investment has also has risks. Some investment worries about company that issuing preferred stock. Preferred stock is riskier than bond. Preferred stock also has lower return than stock. Do not buy preferred stock at depression period because only small percentage firms can pay dividend.
Sources:
Intelligent investor. Benjamin Graham
Bodie, Kane and Marcus. 2002. Investment 5t edition. Mc Graw Hill
