New York - In general, preferred stocks have the following characteristics:
- Are issued by a corporation
- Generally pay a set dividend
- Holders generally receive dividend "preferences" prior to common stockholders receiving any dividends
- Holders have superior liquidation rights and are better protected should the company have financial difficulties
- May be callable by the company either through cash redemption or through conversion to common stock
- Do not share in the benefit as much as common shareholders do during times of success.
Preferred stocks can provide current income to an investment portfolio via dividends.
Preferred stocks are also purchased by corporate buyers who receive a tax advantage known as "dividend received" deductions. This deduction is not available to a regular individual taxpayer.
We believe that preferred stocks are appropriate for investors seeking income.
Because preferred stock is similar to a bond, an individual buyer looking for yield (e.g., interest or dividends) may also want to look at a similar bond issued by the company or for a comparable yield with less risk.
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