A preferred stock is similar to a common stock, except it takes priority when the company distributes dividends or liquidates assets. Preferred stocks are quantified with a par value, which represents the claim one share holds against the overall value of the company. The return on investment for preferred stock comes in the form of dividends, which are calculated by the preferred dividend rate.
Contact your investment broker and ask for the preferred stock's par value and preferred dividend rate.
Multiply the preferred dividend rate by the par value. As an example, if a preferred stock has a par value of $80 and a preferred dividend rate of 10 percent, then you would multiply $80 times 0.10 to calculate the annual preferred dividend payment of $8 per share.
Divide the annual preferred dividend payment by your original purchase price. This gives you your annual return on investment. In the example, if you originally purchased the preferred stock for $64, then your annual return on investment is 0.125, or 12.5 percent. This rate of return holds for any number of shares you may have purchased, so you need not calculate your total costs nor total dividends paid.
- Office of Investor Education and Advocacy. "Stocks." Accessed Feb. 12, 2020.
- Charles Schwab. "Preferred Securities: Higher Yields, Different Risks." Accessed Feb. 12, 2020.
- Office of Investor Education and Advocacy. "Investor Bulletin: Interest Rate Risk—When Interest Rates Go Up, Prices of Fixed-Rate Bonds Fall." Accessed Feb. 12, 2020.
- Nasdaq. "Cumulative Preferred Stock Definition." Accessed Feb. 12, 2020.
- Nasdaq. "Dividend in Arrears Definition." Accessed Feb. 12, 2020.
- Nasdaq. "Noncumulative Preferred Stock Definition." Accessed Feb. 12, 2020.
- The Goldman Sachs Group, Inc. "1,500,000 Depositary Shares Each Representing 1/25th Interest in a Share of 5.00% Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series P," Page 112. Accessed Feb. 12, 2020.
- S&P Dow Jones Indices. "S&P U.S. Floating Rate Preferred Stock Index." Accessed Feb. 12, 2020.
- Office of Investor Education and Advocacy. "Convertible Securities." Accessed Feb. 12, 2020.
- Nasdaq. "Participating Preferred Stock Definition." Accessed Feb. 12, 2020.
C. Taylor embarked on a professional writing career in 2009 and frequently writes about technology, science, business, finance, martial arts and the great outdoors. He writes for both online and offline publications, including the Journal of Asian Martial Arts, Samsung, Radio Shack, Motley Fool, Chron, Synonym and more. He received a Master of Science degree in wildlife biology from Clemson University and a Bachelor of Arts in biological sciences at College of Charleston. He also holds minors in statistics, physics and visual arts.