Preferred shares of stock function differently than common shares. Instead of growing in price as the company grows, the preferred shares typically do not achieve the same rates of return from stock growth. Instead, preferred shares pay a preset dividend that must be paid by the company before paying any dividends to common shareholders. If the company fails to pay the preferred shareholders the required dividends, the company must pay those missed dividends before being able to pay common share dividends in the future.
Research the par value of the preferred stock and the dividend percentage set by the company. The price of the preferred shares may change, but the dividends paid are based on the par value. You can find the information in the company's preferred stock prospectus.
Divide the preferred dividend percentage by 100 to convert to a preferred dividend rate. For example, if the preferred dividend rate equals 6.3 percent, divide 6.3 by 100 to get 0.063.
Multiply the preferred dividend rate by the par value of the preferred stock to find the annual dividends per preferred share. In this example, if the par value equals $30, multiply $30 by 0.063 to get $1.89 per share.
Multiply the preferred dividends per share by the number of shares the company issued to find the total annual dividends paid to preferred shares. In this example, if the company issued 65,000 preferred shares, multiply 65,000 by $1.89 to find the company pays $122,850 in preferred dividends each year.
- University of Georgia: How to Read a Financial Statement
- Electronic Code of Federal Regulations. "Title 12, Chapter III, Subchapter B, Part 327." Accessed June 16, 2020.
- University of Massachusetts Lowell. "Common Stock and Preferred Stock." Accessed June 16, 2020.
- Investor.gov. "Stocks." Accessed June 16, 2020.
- Investor.gov. "Callable or Redeemable Bonds." Accessed June 16, 2020.
Based in the Kansas City area, Mike specializes in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."