Finance and Accounting Stock Features - Essay Example

Finance and Accounting Stock Features Callable preferred stock:- It is special type of preferred stock or share in which the stock issuer has got the right to redeem the share at a predetermined price after a specific date. It is quite similar with the call price. As in case of call price it can be redeemed after certain duration and premium of the call is defined at the time of issue in the prospectus similar things happens in case of Callable preferred stock. It has also some similarity with the preference shares because in case of callable preferred stock, payment of dividend is necessary for the issuer like the dividend payment system in preference shares.

Thus it is also known as callable preferred share. Why do corporations issue Callable preferred stock:- Companies issue callable preferred stock to raise additional cash. Although the procedure of buying and selling is similar like common shares but it is quite similar like bonds. Companies issue it because many investors want to buy the callable preferred stock as it gives fixed dividends like 4-8% return. Dividends are mainly quarterly. The corporations also issue them because they can redeem it after a specific date.

Companies can redeem their callable preferred stock if there is a declination in interest and can save the money by redeeming the existing shares and issuing a fresh new bunch of shares paying lower interest rates. Thus it is beneficial for the company. What type of stock would you want to buy personally and why:- Callable, cumulative and preferred stocks have different features associated with it. The feature of cumulative preferred stock is that the company can get an advantage by issuing it over bonds because it can vote for suspension of dividend if the loss occurs and in case of cumulative stock company need to make up the remaining dividends when it earns profit.

But normal preferred stocks do not have this facility. In case of callable stock, the company can redeem it after a specific date. Among these stocks I would like to buy Callable preferred stock as it some advantages like investors will get higher dividend than other stocks, it is less volatile than other stocks and has less risk associated with it. Another advantage of choosing it that when the company grows, its share value also increases. Thus the dividend rate also gets appreciated. Thus it is good for long term investments.

References California State University Northridge. (No date). Preferred Stocks and Convertibles. Retrieved from http://www.csun.edu/~yj950/Fin432/Fin432_Ch12_preferred.pdf.