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When we talk about stock investing or purchasing of shares, it's usually referring to the common shares of a company. According to our latest survey* carried out on our Ladies' Circle members, 39% of them are invested in stocks. However, most female investors are savvy with common stocks and shares. But some may not be as familiar and choose to exclude this attractive option of purchasing preferred stock from their investment portfolio.
What Is Preferred Stock?
Preferred stock is a class of stock known as ‘preferred shares’ or ‘preference’. As the name suggests, investors of preferred stocks are given preferential treatment over holders of common stocks. It is also commonly known as a hybrid between common stock and a corporate bond.
Keep in mind as well that preferred stock may be illiquid, meaning you may not be able to buy and sell as quickly as equities. In addition, due to illiquidity, a smaller number of buyers and sellers may also be able to influence their trading prices. Preferred stock tend to give you lower capital gains ccompared to equities. It's also important to avoid portfolio concentration by not overtly committing one's portfolio with this asset class. Lastly, do note that preferred stock carries no voting rights, meaning that the holders are not entitled to participate in the company's Annual General Meeting (AGM) and vote on issues listed on the agenda.
Why Preferred Stocks?
- Preferred stocks carry priority over common stocks as holders of preferred stock receive dividends before common stockholders. For investors who are after dividend yields, preferred stock provides the added comfort of knowing that the company will pay preferred dividends in full first. Dividend rates can be fixed or adjustable based on factors stipulated at the point of issuance. The price you pay for your preferred stock will also affect your yield on them.
- Dividend payments for preferred stock can be cumulative which means that if a company missed any dividends within the year, such missed dividends will be added to future dividends during the period of holding the preferred stock.
- If preferred stock is convertible, it offers the flexibility of converting to common shares. This allows you to lock in the dividend income and potentially profit from a rise in the price of the common stock. These are benefits that are not attached to a common stock.
- In the event of company bankruptcy, preferred stockholders will be paid out in assets before common stockholders, but after debt holders and secured creditors.
How To Buy
If the preferred stocks are listed on the Singapore stock exchange, you can buy or sell them just like a common stock. This can be done through a stock broker or using an online trading platform. Before purchasing preferred stock, do assess the issuing company's credit strength.
If the preferred stock issue is new, it can be purchased from primary markets just like an IPO stock. This can be done through private placement, via ATM offers or other available placement channels.
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*Source
From a survey commissioned by OCBC Bank on the OCBC Ladies’ Circle base and conducted by idealog Singapore in July 2009, with a representative sample of 158 Singaporean females aged 20 to 60.
Important Information
The information provided herein is intended for general circulation and/or discussion purposes only. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. Without prejudice to the generality of the foregoing,
please seek advice from a financial adviser regarding the suitability of any investment product taking into account your specific investment objectives, financial situation or particular needs before you make a commitment to purchase the investment product. In the event that you choose
not to seek advice from a financial adviser, you should consider whether the product in question is suitable for you. This does not constitute an offer or solicitation to buy or sell or subscribe for any security or financial instrument or to enter into any transaction or to participate in any
particular trading or investment strategy. OCBC Bank, Bank of Singapore Limited and its respective associated and connected corporations together with their respective directors and officers may have or take positions in the securities mentioned in this report and may also perform or
seek to perform broking and other investment or securities related services for the corporations whose securities are mentioned in this report as well as other parties generally. No representation or warranty whatsoever (including without limitation any representation or warranty as to
accuracy, usefulness, adequacy, timeliness or completeness) in respect of any information (including without limitation any statement, figures, opinion, view or estimate) provided herein is given by OCBC Bank and it should not be relied upon as such. OCBC Bank does not undertake
an obligation to update the information or to correct any inaccuracy that may become apparent at a later time. All information presented is subject to change without notice. OCBC Bank shall not be responsible or liable for any loss or damage whatsoever arising directly or indirectly
howsoever in connection with or as a result of any person acting on any information provided herein. The contents hereof may not be reproduced or disseminated in whole or in part without OCBC Bank’s written consent. This publication may be translated into the Chinese language.
In the event of any ambiguity, discrepancy or omission between the English and Chinese versions, the English version shall apply and prevail.
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