How To Buy Preferred Stock?
Most of the people try their luck, at least once, in the stock market. But not many have a good experience. There a number of factors contributing to it. There are instances when a company goes bankrupt, which leaves the stockholders with worthless stock. This is when Preferred Stocks come to rescue! In such cases, the company pays you at least a portion of the dividends. But do you know what a preferred stock is? Or how to buy preferred stock?
Table of Content
- 1 How To Buy Preferred Stock?
- 1.1 What is Preferred Stock?
- 1.2 Steps on how to buy Preferred Stock!
How To Buy Preferred Stock?
In order to know how to buy preferred stock, you must understand what they actually are and how they work. If you are not sure what is the difference between common stocks and preferred stocks, then you should check out Common Stock vs Preferred Stock.
What is Preferred Stock?
Preferred Stockholders receive a higher priority than common stockholders, as they receive their dividends first. Similar to bonds, preferred stocks generally pay a fixed coupon rate depending on a set “par” value. Preferred stocks investments can have long maturity periods like 30yrs or longer or no maturity at all. But an issuer can redeem them at a set price before the maturity date. Preferred stocks usually carry a credit rating from a known rating agency, which tends to be lower than the issuing firm’s individual bond rating.
Steps on how to buy Preferred Stock!
Do preferred stocks fulfill your investment goals?
This is crucial! Certain companies guarantee dividends on some preferred stocks, making it a viable choice. You can use this steady income to take up a good retirement plan. However, first you should know the different types of Retirement Plans.
Confirm if the dividend payment rights, in the prospectus, guarantee dividends or not!
Preferred stock dividend payment has a priority over common stock. The dividends paid to preferred stockholders are also higher than the common stock dividends. In case of bankruptcy, the preferred stockholders will receive their payments after the creditors but before the common stockholders.
Even though the preferred stock is similar to bonds and offers fixed income payments, they lack the same preferential tax treatment. Preferred stock dividends are taxed as regular income if not sheltered. Moreover, the preferred stockholders do not get any voting rights. You can save some money to invest in Money Market Accounts. Learn What Are Money Market Account Advantages And Disadvantages?
Open an online trading account!
You can use the brokerage’s stock screener to find and compare various companies’ preferred stock offerings. Be thorough when going through the statements and prospectus. You must check the last four quarters of the company if they met, missed or surpassed their earnings. Ensure that the company is capable enough financially to complete their preferred stock dividend obligation before investing.
Buying the stocks
Choose the preferred stock symbol and start the trade. See the “buy” option in the action box? Click it and then enter the number of shares you want to buy. Next, click on the trade button to close the purchase. Now all you have to do is wait for the broker to confirm that the trade was filled. You can close the web page.
If you feel that the stocks and stock market is not your cup of tea, the here are The 7 Best Short-Term Investment Plans For You!