How to Buy Preferred Shares of Stock

It'll take more than a ticker to tell you which preferred stock to buy.

It'll take more than a ticker to tell you which preferred stock to buy.

"The Wall Street Journal" describes preferred stock as a hybrid of common stock and corporate bonds. It offers investment income like bonds, but it's still a form of stock. Information about common stocks is easily available, but preferred stock is harder to buy and harder to research. Research matters, as there's no guarantee a given stock will bring you dividends. Like any investment, you need to know what you're getting into if you want to make money. Your broker may be able to help, but it's possible to do the research yourself.

Write down a list of questions you need to answer before you invest. Preferred stocks have ratings similar to bonds: The poorer the rating, the better the yield you should expect. As corporations have the right to "call" or buy back shares of preferred stock, you also need to know when your shares can be called and how much you get for them if the call goes out.

Research the corporation you're interested in to find your answers. You can learn some of the data by going to the company website and browsing U.S. Security and Exchange Commission filings. Free financial websites, such as freeedgar.com and quantumonline.com, provide more in-depth data, such as the offering prospectus for particular stock issues.

Look at the company's fundamentals as well as the stock price. The company doesn't have to issue dividends if it's struggling financially, and stock in a company that goes belly-up isn't worth anything. If you're investing in one rather than a basket of preferred stocks, due diligence is even more important.

Contact your broker and place an order. Take time to be certain you're buying exactly the shares you want and not making a mistake. Ticker symbols are often confusing. For example, some companies have the same symbol for common and preferred stock, so errors are easy.


  • Different types of preferred stock -- in addition to straight preferred stock -- are available. Trust preferred stock works like very small bond issues. Convertible preferred stock combines elements of common and preferred stock.

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About the Author

A graduate of Oberlin College, Fraser Sherman began writing in 1981. Since then he's researched and written newspaper and magazine stories on city government, court cases, business, real estate and finance, the uses of new technologies and film history. Sherman has worked for more than a decade as a newspaper reporter, and his magazine articles have been published in "Newsweek," "Air & Space," "Backpacker" and "Boys' Life." Sherman is also the author of three film reference books, with a fourth currently under way.

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