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Equity Instruments
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Common Stock
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Preferred Stock
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Tracking Stock
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Spin-off
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Partial Spin-off
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Stock Rights
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Stock Classes
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Real Estate Investment Trust
(REIT)
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Preferred Stock
Preferred stock is a
hybrid financial instrument, with both equity and debt features. Preferred
stock normally pays a high dividend rate, making it a popular investment for
the income orientated investors looking for high yields. It’s also a
favorite marketable security held by corporations and LLC organizations,
because of its 85% corporate income tax exclusion.
Preferreds are susceptible to inflation and rising interest rate risk. They
have the pricing characteristics of a bond, but are subordinated to all the
creditors in case of liquidation; their yields, moreover, are higher then
senior debt due to their subordinated position. Preferred shareholders are paid ahead of the common
shareholders, and normally have no (or very limited) voting rights. Most
preferred issues have call provisions; beginning 5 years from date of
issuance. It is an expensive security for the
issuing corporation, because dividends paid are not deductible for tax
purposes, versus bond interest, which is deductible.
There are four main
types of preferred stock:
Preferred
stocks avail young adults the opportunity of a cash dividend, usually paying
a higher interest rate than debt instruments. Additionally, with convertible
preferred, the holder may participate in both a cash dividend and in the
price appreciation of the stock
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