TABLE OF CONTENTS

INTRODUCTION TO FINANCIAL SECURITY.............................................................................................3

WHAT IS PREFERRED STOCK?................................................................................................................4
HOW PREFERRED STOCK WORKS?........................................................................................................4
WHO BUYS PREFERRED STOCKS?..........................................................................................................4
WHY PEOPLE INVEST IN PREFERRED STOCK?........................................................................................5
WHAT MAKES PREFERRED STOCKS DIFFER FROM COMMON STOCKS AND BONDS?............................5
HOW TO BUY PREFERRED STOCKS?.......................................................................................................6
CONCLUSION.........................................................................................................................................7
REFERENCES..........................................................................................................................................8

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INTRODUCTION TO FINANCIAL SECURITY
Financial security is always associated to financial long-term goals. The term
“security” refers to a fungible, tradable financial instruments that are as valuable as money
since they have monetary value in them. Security is also representing one’s ownership in a
corporation in form of stock holding, or creditor relationship with governmental body or
corporation by owning their issued bonds. Some examples of financial security are including
common stock, preferred stock, and bond.

A security that represents ownership in a corporation is common stock. Common

stockholders receive whatever assets remain after creditors, bondholders, and preferred
stockholders have been paid in a liquidation. In the market, various types of stocks are
traded. For example, value stocks that are less expensive in relation to their fundamentals,
and growth stocks that tend to increase in value as earnings grow.

In comparison to common stockholders, preferred stockholders have a stronger

entitlement to distributions (such as dividends). In terms of corporate governance, preferred
stockholders typically have no or few voting rights. Preferred stockholders have a higher
claim than common stockholders but a lower claim than bondholders in the case of a
liquidation. Preferred stock is more appealing to some investors since it combines features
of both bonds and common shares.

Meanwhile, bonds are tradable assets that are securitized versions of corporate debt
issued by businesses. Since bonds historically paid debtholders a fixed interest rate
(coupon), they are referred to as fixed-income instruments. Interest rates that fluctuate or
float are also rather typical today. Interest rates and bond prices are inversely associated;
when rates rise, bond prices decline and vice versa. Bonds have maturity dates, after which
the full principal must be repaid to avoid default.

After all examples of financial security that are given above, I would like to explain
more about preferred stock in my writing. May this writing clear any curiosity in one’s mind
about preferred stock and gives the best vision for someone who would like to secure their
financial in preferred stock.

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WHAT IS PREFERRED STOCK?
Preferred stock is a type of stock that pays fixed dividends but does not provide
voting rights. Preferred stock combines aspects of both common stock and bonds into a
single security, including regular income and company ownership. Investors buy preferred
stock to bolster their income and also get certain tax benefits.

When it comes to dividends, preferred stockholders have priority over common

stockholders, which typically yield more than common stock and can be paid monthly or
quarterly. These dividends can be fixed or set in relation to a benchmark interest rate, such
as the London Interbank Offered Rate (LIBOR) and are frequently expressed as a
percentage in the issuing description. Adjustable-rate shares specify specific factors that
influence dividend yield, and participating shares can pay additional dividends calculated in
terms of common stock dividends or company profits. The dividend is paid at the discretion
of a company's board of directors.

HOW PREFERRED STOCK WORKS?

Preferred stock is frequently referred as a hybrid investment that combines
characteristics of both bonds and common stock. It combines the constant and reliable
income payments of bonds with the benefits of common stock's equity ownership, including
the possibility for share value growth over time.

WHO BUYS PREFERRED STOCKS?

Typically, the most frequent buyers of preferred stock are institutions. This is a result
of the fact that they qualify for tax benefits that individual investors do not.

Preferred offerings are a reasonably easy approach to raise a lot of money because
these institutions buy in bulk. For this reason, private or impending-public corporations offer
preferred stock.

Issuers of preferred stock typically cluster near the extremes of the credit-worthiness
spectrum. Some companies issue preferred shares either to avoid downgrading or because
regulations prevent them from taking on any additional debt. On the other hand, a number of
well-known companies, like Georgia Power, Bank of America, and General Electric, issue
preferred shares to finance projects.

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WHY PEOPLE INVEST IN PREFERRED STOCK?
Greater dividends are paid on preferred stocks. In general, preferred shares offer
higher recurring dividend payments. Because you are taking on more risk than you would
with a bond, pay-outs are frequently higher.

Next, another reason why people buy preferred stock is due to the preferential
access to assets provided to preferred investors. Preferred shareholders come before
common stockholders in the event of bankruptcy, although they still come after bondholders.

In addition, callable shares may offer preferred owners a possible premium. The
corporation can purchase the preferred shares back since it is callable. You might get more
money than what you bought for the preferred stock if the callable price is higher than the
par value.

Additionally, the opportunity to convert preferred stock into common stock is another
reason why people purchase preferred stock. Preferred stock can be exchanged for
common stock when you purchase convertible shares. You might convert your shares and
profit from the common stock's appreciation while investing in a less hazardous asset if its
value significantly increases.

Compared to common stock, preferred stock frequently offers better consistency and
cash flow. As a result, preferred stock is frequently purchased by investors who want to hold
stocks without overexposing their portfolio to risk. Preferred stock also has favourable tax
status; as a result, institutional investors and big businesses may be drawn to the investment
because of its tax benefits.

WHAT MAKES PREFERRED STOCKS DIFFER FROM COMMON STOCKS AND

BONDS?
Dividend payments from preferred stock are steady and predictable; they mimic bond
interest payments. Preferred stock is not debt that needs to be paid back, unlike bonds.
Preferred stock dividends may be taxed at a lower rate than bond interest, giving preferred
stock income preferential tax treatment.

Contrary to most bond interest payments, dividends on preferred stocks are not
always guaranteed. A corporation may decide to curtail or even stop paying dividends if its
profits fall if it is in the red and losing money. Dividends on common stock are decreased or
abolished before pay-outs on preferred stock, though even preferred stock dividends may be
decreased or eliminated in some circumstances. In bankruptcy, preferred stock has priority
over common

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stock. Bondholders are paid back from the residual assets in the event that a firm declares
bankruptcy and is liquidated before preferred shareholders. The last in line, even though
they are typically eliminated in bankruptcy, is the common stockholder.

While comparing preferred stock and common stock, both give their holders
ownership in the company. Common stock, which gives investors voting rights and may
even pay dividends, is undoubtedly more recognisable to you. Although preferred stocks
may be more tempting to some investors because to their more frequent and periodic
dividend payments, they may not offer the same voting rights or long-term value
appreciation potential.

The upward potential for common stock is limitless because there is no upper bound on the
stock price. Your gains are more constrained when you own preferred stock. That's because
preferred stock values, like bond prices, fluctuate gradually and are influenced by market
interest rates.

Though preferred stocks are less risky and offer more stability than common equities.
Their dividend payments are prioritised over those on common stock, albeit this is not a
guarantee. If a firm cannot afford them at any time in the future, they may even be paid back.
If a business declares bankruptcy, preferred investors will also be paid before common
stockholders but after bondholders.

It's also important to remember that unlike common stocks, preferred equities are
callable. The Company may recall shares of Preferred Stock after a specified date. The call
price could be somewhat higher or at par value. Both of these could be less than the
preferred stock's market price, which you paid. To adjust the dividend pay-out to the current
interest rates, a firm could recall and reissue preferred shares. For like reasons, businesses
might also recall and reissue bonds.

HOW TO BUY PREFERRED STOCKS?

If you think that preferred stock is the best investment for you, then these steps might
help you on buying preferred stocks.

First of all, you need to compare the preferred stock credit ratings of various
companies. Similar to bonds, preferred stocks have a credit rating that is available for
viewing before to purchase. Higher credit ratings on preferred equities mean lower risk
compared to lower grades. Visit the Standard & Poor's global website, register for an
account, and use the "Find a Rating" button to search for a firm to verify the credit ratings of
your preferred stock.

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 Next, you need to open an account and compare online brokerage companies.
Similar to purchasing ordinary stock, buying preferred shares necessitates working with a
broker or brokerage business. Today, there are several online brokerage companies that let
you open an account with a little minimum amount and conduct trading. Each broker has
their own special combination of benefits and drawbacks. Before opening an account, take
into account a variety of aspects, such as trading support, commissions, fees, platform
usability, and brand reputation.

Before you buy, make sure you follow your stock of choice for at least a week to
ensure you're getting a good deal. In an effort to lessen the impact of their broker's
commission, newbies frequently buy too much when placing their first trade. Buying a few
shares cautiously and watching how they perform over the next few weeks is a far better
course of action. If they are successful, buy more of them. You can quickly change your
mind if the preferred stock's value significantly declines.

Once you’ve decided how many shares you’d like to buy, use your brokerage’s
trading platform to buy an order. The particular methods for carrying out your trade will
depend on your platform; however, the majority of brokerage houses provide a tab or page
specifically for buying and selling stocks. Enter the stock's name, your order type, and the
amount of shares you want to purchase. You'll quickly see your new stocks in your account
when your broker takes care of the rest.

Lastly, follow the progress of your stock. You won't need to keep track of the
performance of preferred stock on a daily basis because it is a more reliable investment than
common stock. At least once a year, you should take the time to assess the performance of
your stocks and rebalance your portfolio to get rid of underperforming securities.

CONCLUSION
In conclusion, if you are looking for a low risk investment with a high dividend pay,
preferred stock is the best for you.

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REFERENCES
Ganti, A. (15 September, 2022). Preferred Stock. Retrieved from Investopedia:
https://www.investopedia.com/terms/p/preferredstock.asp#:~:text=Preferred%20stock%20
is%20a%20different,e.g.%20dividends)%20than%20common%20stockholders.

Hayes, A. (27 October, 2022). Preferred vs. Common Stock: What's the Difference? Retrieved from
Investopedia: https://www.investopedia.com/ask/answers/difference-between-preferred-
stock-and-common-stock/

Horvath, S. (4 September, 2021). How To Buy Preferred Stock. Retrieved from Benzinga:
https://www.benzinga.com/money/how-to-buy-preferred-stock

Miranda Marquit, B. C. (28 February, 2022). Preferred Stock—The Best Of Bonds And Equity In One
Security. Retrieved from Forbes Advisor: https://www.forbes.com/advisor/investing/what-
is-preferred-stock/