How to Sell Preferred Stock

Preferred stock is ownership in the company that has characteristics of debt and equity. Unlike debt, you receive a dividend, which is equivalent to an interest payment. Unlike equity, you have no voting rights in the company. Preferred stock trades in the same way as equities (via brokers) and commissions are similar to stock fees. You will have to sell at the current market price unless you have convertible preferred stock. In this case, you need to compute the conversion price to determine the break-even price.

Contact your broker. Preferred stock sells in the same way as equities. You will need to know the CUSIP (Committee on Uniform Securities Identification Procedures) number for the issue for the broker to look up prices for you. This should be on your broker statement or the prospectus for the preferred stock issue.

Compare prices. Prices of preferred stock change with interest rates. This will determine whether or not you make a profit from the investment.

Sell convertible preferred stock. There is one type of preferred stock that converts into common shares at a certain price. If this is your stock, then the value of the preferred stock is also tied to share price appreciation.

Look in the prospectus for the conversion ratio. This ratio is set by management prior to issue. If a conversion ratio is 8 it means that the investor is allowed to trade in the preferred stock for 8 common stock.

Calculate the conversion price. The market conversion price is equal to the purchase price of the preferred share divided by the conversion ratio. If the market value of your preferred stock is $64, then the conversion price for stock is $8 ($64/8).

Try to sell at a profit or for a premium. If the shares are selling above the conversion price you will profit from converting to common shares first. However, if the commons shares are below the conversion price, you can sell your preferred stock at the market rate.