SIE: Preferred Dividends

Preferred Dividends

As with common shares, dividend payments for preferred shares often are paid quarterly. This means that four times a year the investor receives 25% of the annual dividend. Unlike with common stocks, however, the dividend for preferred shares is determined when the stock is issued. Preferred stock dividends are typically higher than common stock dividends.

A fixed-rate preferred stock may set its dividend payment at a fixed-dollar value ($5, for example), or the dividend may be based on a percentage of the par value of the stock, as stated on the stock certificate (5% of $100, for example). A floating-rate, or adjustable-rate, preferred stock will have an adjustable dividend based on a formula tied to another benchmark, such as 3% above the interest rate on 90-day Treasury bills. The rate is reset quarterly, making the prices of adjustable-rate preferred stock less sensitive to interest rate change