The Yin And Yang Of Preference Stocks

by David Jenyns on July 24, 2009

Investment in preference stocks may have a number of merits. The rate of return on preference stocks is often slightly higher than that which may be obtained on good-quality bonds.

In addition, the high-grade preference have always shown considerable resistance to market fluctuations. It is to be noted that the better quality preference stocks are now eagerly sought by insurance companies, trustees, endowment funds, and the like. It must be remembered that the chief risk in all high-grade securities (bonds and preference stocks) is not related to the general course of business activity. This has already been mentioned in our discussion of bonds; it also applies to the market price and the yield of preference stocks.

Bond interest must be paid and is a first claim on earnings, but directors may pass a preference dividend when earnings do not permit payment and force the preference into arrears.

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