This article was a joint effort between a subscriber of The Mortgage REIT Forum and Colorado Wealth Management Fund. With their explicit written permission, I am publishing it publicly.
Before you invest in preferred shares, there are a few things you should know to maximize your effectiveness. By paying attention to a few details you will feel more confident about your trades and you will have a stronger grasp of the dynamics of this exciting part of the market.
As a trader and researcher I spent many years learning the strategies of investing in preferred shares. About three years ago I realized I want to share my experience with other investors and traders. For that reason I write some public articles and some subscription articles.
Whether you are a trader or a long-term investor, a novice or an old-timer, let’s take some time to review the basic elements of successful investing in preferred shares.
PART 1: How to Invest in Preferred Shares
–Like a stock, a preferred share moves up and down in price with the market forces.
–Unlike a stock, a preferred share can be called back by the issuing company at a fixed price, normally, $25.
–Like many stocks, a preferred stock pays a dividend, fixed by a contract known as a prospectus. All preferred stocks pay a fixed dividend. This causes many people to compare them to bonds, which also pay a fixed dividend.
–Unlike a stock, the dividend remains constant throughout the life of the preferred share. Because the dividend if fixed, they are compared to bonds, which also are fixed.
–Like a bond, a preferred stock has a call date or a maturity date. The issuing company may or may not call the preferred shares on the “call date.” If the share is called, the company gives the agreed amount (usually $25) to the investors and then retires the shares.
–Preferred shares are called “preferred” because these shares have dividend preference over common shares if the company is in a financial bind.
–Because preferred shares…