Preferred Stocks

Preferred stocks have several advantages over common stocks. They are less risky because the issuer promises to return par value when the stock is called. They are often issued with a dividend higher than the common stock dividend so they serve the dual purpose of producing income while preserving capital. And the preferred stock dividend must be paid before any payment can be made on the common stock.

You have probably been aware of these characteristics, but you may not know there are substantial profits to be made by purchasing preferred stocks at a discount and selling them ata premium price.

This type of transaction is possible because the prices of some preferred stocks fluctuate above and below the issue price, which in many cases is $25. The prices usually fluctuate within $2 of the issue price. Here’s an example of how profitable it can be when you buy at a discount and sell at a premium.

Suppose you purchase a $25 par value stock for $23.50, hold it a year while collecting a dividend of 6 percent, and sell it for $26.50. At the conclusion of that round-trip transaction, you would have collected 6 percent in dividends and 12 percent in capital gains, which totals to a profit of 18 percent in one year.

You can find listings of preferred stocks in the Wall Street Joural, Barron’s weekly magazine, and Investor’s Business Daily. Barron’s shows the current price, yield, and the new highs and lows for the year. By checking through the list you should be able to find a few stocks priced at a discount large enough to deliver a profit from either rising to a premium price or being called at par value.

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The book’s table of content:

Chapter 1: Basic Concepts of Technical Analysis
Chapter 2: Volume Analysis
Chapter 3: Moving Averages
Chapter 4: Porfolio Management
Chapter 5: Technical Analysis and the Stock Market
Chapter 6: Technical Analysis and the Internet
Chapter 7: Analyzing Closed-End Funds
Chapter 8: Analyzing Preferred Stocks
Chapter 9: Analyzing Real Estate Investment Trusts (REITs)
Final Review Exercise

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Preferred Stocks