Preferred dividend is a type of dividend, which is a periodic payment of a corporation’s profits to its shareholders. Dividends are usually disbursed in the form of cash, but they can also be in the form of shares. Preferred dividends are different from regular dividends, as preferred dividends are not affected by decisions taken by the corporation’s board of directors. Furthermore, they are paid before any regular dividends. Thus, understanding preferred dividend is key for investors interested in maximizing the returns from their investments.
Characteristics of Preferred Dividend
Preferred dividends are usually issued with the promise that they will be paid on a regular basis. This means that they do not fluctuate with the company’s performance like regular dividends do. Preferred dividends are usually issued with accompanying documents, such as a prospectus and shareholder agreement, which outline the terms and conditions of the dividend payment. In addition, they are typically cumulative, meaning that missed payments must be repaid with all future payments.
Advantages of Preferred Dividends
Unlike regular dividends, preferred dividends are paid before other stockholders have a chance to access their share of the profits. This can be beneficial to investors who have taken out a large loan, as the preferred dividends can be used to pay off the principal and interest payments before other shareholders gain access to the company’s profits. Consequently, preferred dividend holders have a greater sense of financial security in comparison to holders of ordinary shares. Furthermore, certain businesses, such as banks and insurance companies, use preferred dividends for tax exemptions.
Examples of Preferred Dividends
Preferred dividend is becoming increasingly popular, and many big companies are now issuing them. Microsoft and Apple both issue preferred dividends, and they are becoming increasingly common in the financial industry. For instance, Goldman Sachs’s recent offering of 5.5% preferred stock and JPMorgan’s offering of 6.25% preferred stock are prime examples of companies issuing preferred dividends.
Conclusion
Preferred dividend is a type of dividend payment, which is not affected by the decisions of the corporation’s board of directors. Preferred dividends are usually cumulative and are issued with accompanying documents, such as a prospectus and shareholder agreement. Preferred dividends can be beneficial to investors who have taken out a large loan, as it gives them certainty and security of access to profits. Microsoft, Apple, Goldman Sachs and JPMorgan are all companies which issue preferred dividends.