Common and Preferred Stock

COMMON STOCK

When you invest in stock, you gain ownership interest in a company. As a holder of common stock, you have voting rights in the election of company officers and other important matters. Your shares will rise or fall in value depending upon the performance of the company along with many outside factors such as overall market conditions. In addition to the opportunity for appreciation in the value of your shares, you may also receive a dividend payment from the company.

Dividends are the distribution of a company’s profit or earnings back to the company’s stockholders. Some companies may choose to pay some of that profit back out to the shareholders in the form of a dividend, while a “growth” company will typically choose to reinvest those profits back into the company.

PREFERRED STOCK

If you hold preferred stock, you would not typically have voting rights, however preferred stock generally comes with a fixed dividend that is paid out before any payments are made to common stockholders. In exchange, your dividend may not increase when the company’s profits are increasing, and the underlying value of your shares won’t appreciate as much in favorable market conditions. Preferred stock can be structured in several different manners, each with its own advantages and trade-offs:

• Cumulative vs. non-cumulative. With a cumulative preferred, if the company does not pay a dividend, the dividends build up, and before any dividend can be paid to common stockholders, the entire balance of dividends in arrears must be paid in full. With non-cumulative preferreds, if the company misses a dividend payment, the dividend will likely never be paid to the shareholder.
• Adjustable rate preferred stock. With this type of preferred stock, instead of receiving a fixed dividend payment, the dividend will vary based on any number of factors stipulated by the company upon the initial offering of the issue.
• Convertible preferred stock. Holders of convertible preferred stock have the right to convert their preferred stock into shares of common stock. This allows the investor to lock in the dividend income at first, and still have the potential to convert to common stock to participate if the investor believes that stock prices will appreciate.
• Participating preferred stock. Typically, shares of participating preferred stock receive a fixed dividend plus an additional dividend based upon a stipulated percentage of either the net income or the dividend paid to the common stockholders.

The Ziegler Advantage

Our equity trading, or syndicate desk, specializes in finding preferred stock opportunities for our clients. Contact your Ziegler financial advisor today to learn more.