how to get preferred stock

A practical, beginner-friendly guide explaining how to get preferred stock: definitions, types, where to find issues, step-by-step buying for public and private deals, valuation, risks, tax and cus...

2025-09-03 11:29:00

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How to Get Preferred Stock

Preferred stock is a hybrid equity/debt instrument that sits between common stock and bonds in a company’s capital structure. If you’re searching for how to get preferred stock, this guide explains the main characteristics of preferred shares, the major types, where and how retail and accredited investors can acquire them (public issues, ETFs/funds, or private/startup preferreds), valuation and yield calculations, key risks, tax and settlement mechanics, and a practical pre-purchase checklist.

As of 2024-06-01, per Fidelity reported guidance on preferred shares, many retail-focused brokerages and financial educators emphasize dividend income, call risk, and liquidity as the primary considerations when buying preferred stock. Sources used to inform this guide include Fidelity, Benzinga, Investopedia, Saxo, AAII, Charles Schwab, and Silicon Valley Bank; see the References section for details.

What is Preferred Stock?

Preferred stock (preferred shares) is a class of equity that typically offers fixed or defined dividends and priority over common stock for dividend payments and in liquidation. Preferred stock is a hybrid: it has equity features (ownership, potential for dividends) and debt-like features (fixed coupon-like payments and seniority). When you ask how to get preferred stock, you must first decide whether you mean publicly traded preferreds, private/preferred in startups, or indirect exposure through funds — each route has different access, documentation, and risks.

Key distinctions from other securities:

Priority: Preferred holders have seniority over common shareholders for dividends and liquidation but are generally junior to bondholders.
Voting: Preferred shares usually carry limited or no voting rights compared with common stock.
Income focus: Preferreds are primarily purchased for income (dividends) rather than capital appreciation.

Key Features of Preferred Stock

Preferred issues vary by structure. When learning how to get preferred stock, you should be familiar with these features so you can read an offering prospectus or a broker fact sheet.

Fixed dividends: Many preferreds pay a stated fixed dividend rate (similar to a bond coupon) expressed as a percentage of par value (commonly $25 or $50). These dividends can be paid quarterly or at other intervals.
Cumulative vs non‑cumulative: Cumulative preferreds accrue unpaid dividends that must be paid before common dividends. Non‑cumulative preferreds do not accrue missed payments.
Convertibility: Convertible preferreds can convert into a set number of common shares under specified conditions — useful if the common stock appreciates.
Callable/redeemable: Issuers often include a call feature allowing them to redeem preferreds at a specified price after a call date, creating call risk for investors.
Participating preferreds: Some preferreds participate in additional common dividends or liquidation proceeds beyond the fixed dividend.
Adjustable-rate vs fixed-rate: Adjustable-rate preferreds have dividends tied to a benchmark (e.g., treasury rates or LIBOR successor rates), reducing sensitivity to interest rate moves.
Liquidation seniority: If a company liquidates, preferred shareholders are paid after debt holders but before common shareholders.

Types and Structures of Preferred Stock

Major types you will encounter when studying how to get preferred stock:

Cumulative preferred: Popular for income-oriented investors because missed payments accumulate.
Non‑cumulative preferred: Riskier for dividend continuity; missed dividend payments are not owed later.
Convertible preferred: Common in venture financing — converts to common shares at a defined rate.
Participating preferred: May receive extra distributions beyond the fixed dividend under certain events.
Callable (redeemable) preferred: Issuer can redeem at par or a call price after a set date.
Adjustable-rate preferred: Dividend resets periodically; helps protect against rising rates.

Use cases:

Corporations often issue preferreds to raise capital without diluting voting control.
Banks, utilities, and REITs are frequent issuers of preferreds because of capital structure and regulatory needs.
In private finance, preferred stock structures protect investors via liquidation preferences, anti‑dilution clauses, and board rights.

Why Investors Buy Preferred Stock

Investors consider how to get preferred stock for several reasons:

Income generation: Preferreds typically pay higher yields than common dividends and sometimes higher than similarly rated corporate bonds.
Lower volatility vs common stock: Preferreds can be less volatile than common shares because price is influenced by fixed dividends.
Seniority over common stock: In distress or liquidation, preferred holders are prioritized for payouts ahead of common shareholders.
Portfolio diversification: Preferreds provide a different risk/return profile suitable for income-focused allocations.

Typical investor profiles:

Income-oriented investors seeking steady cash flow.
Conservative equity investors wanting enhanced yield with some equity upside.
Fixed-income investors looking for yield but accepting higher credit risk than senior bonds.

When not to buy: If you need capital appreciation, prefer liquidity, or cannot tolerate call/interest-rate risk, preferreds may be less appropriate.

Where to Find Preferred Stock

If you’re researching how to get preferred stock, here are the common venues and instruments:

Major exchanges: Many preferred issues trade on large exchanges and are accessible via retail brokerages. Preferred tickers often include a series suffix or special symbol.
Over-the-counter (OTC): Some preferreds trade OTC, typically with lower liquidity and wider spreads.
Broker screens and issuer pages: Retail brokers provide preferred stock screeners and issuer prospectuses.
Preferred-focused ETFs and mutual funds: For diversified exposure without buying individual issues.
Private placements and venture deals: For accredited investors seeking startup or private-company preferreds (access is restricted and governed by securities law).

When you want to know how to get preferred stock, a key first decision is whether you prefer individual issues (more control, issue-level risk) or fund-based exposure (diversification, management fees).

How Preferreds are Identified (Tickers and Series)

Preferred issues are usually identified by a base company ticker plus a series letter or suffix. Reading an issue’s prospectus or term sheet is essential to find:

Dividend rate and type (fixed, adjustable, cumulative/non‑cumulative).
Par value and trading unit (commonly $25 par; some trade in $100 increments).
Call terms (earliest call date, call price).
Conversion terms (for convertible issues: conversion ratio, trigger events).
Credit ratings (if rated) and seniority.

Understanding the ticker convention and series letter will help you locate price, yield-to-call, and prospectus details in your brokerage platform.

How to Buy Publicly Traded Preferred Stock (Step-by-step)

Below is a practical step-by-step process that answers how to get preferred stock when the issue is publicly traded.

Step 1 — Research and screen

Define your objective: income, total return, duration/interest-rate sensitivity, or credit risk tolerance.
Screen for candidate issues by issuer sector (banks and utilities commonly issue preferreds), dividend type, yield-to-call, credit ratings, and liquidity metrics (average daily volume).
Check prospectus/term sheet for call risk, par value, dividend payment schedule, cumulative vs non‑cumulative status, and any conversion features.
Compare yield-to-call and yield-to-maturity (if applicable) rather than current yield alone.

Step 2 — Choose a brokerage and open an account

Use a brokerage that lists exchange-traded preferreds and offers clear quote displays for yield-to-call, call date, and historical trades.
Retail investors can open accounts with full-featured discount broker platforms; if you trade OTC preferreds or fractional sizes, confirm platform capabilities.
For crypto-native readers interested in custody and wallet integration, use the Bitget platform and Bitget Wallet where relevant for on‑ramp and custodial services for eligible securities-like instruments. (Note: preferred stock purchases are executed through regulated brokerage services; Bitget-specific offerings may vary by jurisdiction.)

Step 3 — Place an order

Select order type: limit order recommended due to often-wide bid-ask spreads in preferred issues; market orders can execute at unfavorable prices.
Consider lot size: some preferreds trade in odd-lot increments; confirm minimum trade size and commission structure.
For less liquid series, use limit orders and patience — the best price may take time to fill.

Step 4 — Post-purchase monitoring

Track dividend payment dates: ex-dividend date, record date, and payable date.
Watch for call notices from the issuer and monitor yield-to-call vs yield-to-maturity.
Reassess creditworthiness and sector conditions; preferred price sensitivity to interest rates and credit spreads is dynamic.

Checklist — Data points to check before purchase

Issuer credit rating and recent financials
Dividend type (cumulative vs non‑cumulative)
Dividend rate and payment frequency
Call schedule, call price, and yield-to-call
Liquidity (average daily volume, spread)
Conversion terms (if convertible)
Tax treatment and withholding considerations

Order Types, Liquidity and Execution Considerations

Market vs limit orders: Limit orders are usually preferred for illiquid preferreds to control execution price.
Bid-ask spreads: Preferreds often have wider spreads than common equities — factor the spread into estimated transaction cost.
Odd-lot trading: Some brokerages charge extra or route odd-lot orders differently; confirm with your broker.

If you ask how to get preferred stock with the best execution, focus on liquidity metrics, use limit orders, and be mindful of trade timing around dividend ex-dates.

Using Funds and ETFs to Get Preferred Exposure

If you prefer diversification and professional management, preferred-focused ETFs, closed-end funds (CEFs), and mutual funds offer a route to gain exposure without selecting single issues.

Pros:

Diversification across issuers and series reduces single-issuer risk.
Professional management for yield optimization and duration management.
Ease of trading (ETFs trade like stocks) and sometimes better intraday liquidity than certain single preferreds.

Cons:

Management fees/expense ratios reduce net income.
Fund-level risks (leverage in some CEFs, swing pricing in funds) may introduce volatility.
Potential mismatch between the investor’s target yield-to-call and the fund’s holdings and strategies.

When deciding how to get preferred stock exposure via funds, compare expense ratios, distribution yield, historical performance, and the fund’s holdings and leverage policies.

Buying Preferred Stock in Private/Startup Contexts

In venture and private-company finance, preferred stock plays a different role. If your question about how to get preferred stock refers to startup or private deals, note these differences:

Private preferreds grant investors rights that protect downside: liquidation preferences (1x, 2x, etc.), anti-dilution provisions, conversion rights, dividends (accumulative or non‑cash), and sometimes board seats.
Access: private preferreds are generally offered through private placements to institutional or accredited investors. Retail access is limited and regulated.
Secondary markets: Existing preferred holders sometimes sell to secondary buyers; such trades are governed by transfer restrictions and approval provisions.

How individual investors may access private preferreds:

Accredited investor participation in private placements (subject to eligibility and issuer willingness).
Purchase through regulated secondary platforms that facilitate private securities trades (eligibility, transfer, and KYC/AML apply).
Participation in syndicates or special purpose vehicles (SPVs) arranged by angel groups or venture platforms (often limited to accredited investors).

Eligibility and Legal/Regulatory Considerations for Private Placements

Accredited investor rules generally apply in the U.S. for many private placements; check local securities laws for jurisdictional requirements.
Private placement memoranda and subscription agreements detail investor representations, transfer restrictions, and rights.
Use of placement agents and legal counsel is common; transaction costs and documentation complexity are higher than for public preferreds.

If learning how to get preferred stock from a startup, be prepared for restricted liquidity, legal vetting, and complex shareholder rights that differ greatly from public preferred issues.

Valuation, Pricing and Yield Calculations

Understanding pricing and yields is central to knowing how to get preferred stock sensibly.

Current yield: annual dividend divided by current market price — a snapshot measure but ignores call risk and time value.
Yield-to-call (YTC): projects the return if the preferred is called at the earliest call date — crucial for callable issues because many are redeemed when interest rates fall or issuer refinance opportunities arise.
Yield-to-maturity (YTM): for preferreds with a stated maturity (less common), calculates return if held to maturity.
Par value and price: Preferred par is often $25 or $100; trading price above or below par affects yield and call incentives.
Interest-rate sensitivity: Preferreds behave like long-duration bonds in many ways — higher rates can depress prices; adjustable-rate preferreds mitigate this sensitivity.
Credit spread analysis: Compare a preferred’s yield spread to similarly rated corporate bonds or bank capital instruments to assess relative value.

When you evaluate how to get preferred stock, always compute yield-to-call and consider worst-case scenarios (issuer insolvency or call at an unfavorable price).

Risks and Considerations

Preferred stock comes with unique risks. When considering how to get preferred stock, review these key risk factors:

Credit/default risk: Preferred dividends are paid at the discretion of the issuer (subject to cumulative terms), and bankruptcy can wipe out equity claims.
Interest-rate risk: Fixed-rate preferreds can fall in price when market interest rates rise.
Call risk: Callable features allow issuers to redeem preferreds early, often when rates decline, capping upside for investors.
Liquidity risk: Many preferred series trade thinly with wide spreads.
Limited capital appreciation: Preferreds usually have limited upside compared to common stock; converts are an exception.
Subordination vs bonds: Preferred holders are junior to bondholders in the creditor hierarchy.
Tax treatment: Dividends may or may not qualify for favorable tax treatment; tax rules vary by investor status and jurisdiction.

The most practical considerations when studying how to get preferred stock are liquidity and call risk — both affect realized returns significantly.

Tax Treatment and Income Reporting

Tax treatment of preferred dividends depends on jurisdiction and security specifics. General U.S.-focused points:

Qualified vs ordinary dividends: Some preferred dividends may qualify for the lower qualified dividend tax rate if they meet specific IRS conditions; many do not and are taxed as ordinary income.
1099-DIV: Brokers generally report dividend income on Form 1099-DIV in the U.S.
Non-U.S. investors: Withholding may apply to dividend payments; consult tax advisors and check broker reports.

Before you decide how to get preferred stock, confirm the tax profile of the specific issue and how dividends will be reported by your broker.

Custody, Settlement, and Corporate Actions

Key operational details to know when you buy preferred stock:

Settlement: Most U.S. exchange-traded trades settle on T+2 (trade date plus two business days).
Custody: Preferred shares are held in your brokerage account; custodial account statements list holdings and dividends.
Corporate action dates: Know ex-dividend, record, and payable dates to time purchases if you need certain dividend entitlements.
Calls and conversions: Issuers give notice prior to calling or converting issues; monitor communications from issuer or broker.

Understanding settlement and corporate actions helps answer practical questions about how to get preferred stock and what to expect after purchase.

Fees, Commissions and Cost Considerations

Costs that affect net yield when buying preferred stock:

Broker commissions: Depending on broker plan, commissions may be per trade or commission-free for certain products; verify for preferred trades.
Bid/ask spread: Often a material cost for preferreds — wider spreads increase effective transaction cost.
ETF expense ratios: When using funds for preferred exposure, expense ratios reduce net yield.
Special charges: Some brokers apply additional fees for OTC trades or odd-lot executions.

Compare the total cost (commissions + spread + fees) when deciding how to get preferred stock.

Practical Checklist — Before You Buy

Confirm your investment objective (income vs growth vs balance).
Screen for issuer credit quality and sector concentration.
Check dividend type (cumulative vs non‑cumulative) and payment schedule.
Calculate yield-to-call and yield-to-maturity (if relevant).
Evaluate liquidity: average daily volume and bid-ask spreads.
Review call provisions and conversion terms (if convertible).
Consider tax implications and account type (taxable vs tax-advantaged).
Choose order type (limit recommended) and position size relative to portfolio.
Monitor for corporate actions post-purchase (calls, conversions, dividend changes).

Frequently Asked Questions (FAQ)

Q: What is the minimum purchase size for preferred stock?

A: Minimums depend on the broker and the issue’s trading unit. Many preferreds trade in single-share increments with par values commonly $25 or $100, but some brokers have minimum cash or position-size limits.

Q: Can retail investors buy preferreds?

A: Yes — many preferred issues trade on major exchanges and are available to retail investors through standard brokerage accounts. Private preferreds typically require accredited investor status.

Q: How do preferreds differ from corporate bonds?

A: Preferreds are equity and rank below bonds in liquidation priority. Preferred dividends may be skipped (non‑cumulative) or deferred (cumulative), while bonds require interest payments per the debt contract or trigger default.

Q: Are preferred dividends guaranteed?

A: No — dividends on preferreds are not guaranteed. Cumulative preferreds accrue missed dividends that must be paid before common dividends, but payments still depend on issuer solvency and board actions.

Q: What happens if the company calls the preferred stock?

A: The issuer redeems the shares at the call price; investors receive the call price plus accrued dividends as defined in the prospectus. Yield-to-call is the relevant return metric.

Q: How do convertible preferreds work?

A: Convertible preferreds allow holders to convert to common shares at a specified ratio or under certain events, offering upside if the company’s common stock rises significantly.

Alternatives to Direct Preferred Stock Ownership

If you still wonder how to get preferred stock but prefer alternatives, consider:

Preferred ETFs and mutual funds for diversified exposure.
Corporate bonds for fixed-income exposure with higher seniority.
High-dividend common stocks for potential capital appreciation plus dividends.
Preferred-like instruments (trust-preferreds, REIT preferreds, MLP preferreds) with similar return profiles but specific structural nuances.

Each alternative trades off diversification, fees, liquidity, and tax treatment differently.

References

Fidelity Investments — educational materials on preferred stock (accessed 2024-06-01).
Investopedia — articles explaining preferred stock features and valuation (accessed 2024-06-01).
Benzinga — practical investor guides and market commentary on preferreds (accessed 2024-06-01).
Charles Schwab — preferred stock primers and broker tools (accessed 2024-06-01).
AAII (American Association of Individual Investors) — preferred stock research and portfolio considerations (accessed 2024-06-01).
Saxo — structural explanation of preferred instruments and examples (accessed 2024-06-01).
Silicon Valley Bank — discussions on venture preferreds and startup term-sheet mechanics (accessed 2024-06-01).

(For issue-level decisions, always review the issuer’s prospectus or offering documents and consult tax/legal professionals as needed. This guide is informational and not investment advice.)

Next Steps and Bitget Notes

If you’re ready to act on how to get preferred stock exposure:

For public preferreds, open or use a regulated brokerage account that lists exchange-traded preferreds; if you’re using platform services that integrate Web3 features or custody, consider Bitget and Bitget Wallet for onboarding and custody where supported by local regulations.
For diversified exposure, evaluate preferred ETFs or funds and compare expense ratios and distribution histories.
For private or startup preferreds, verify investor accreditation requirements and consult legal counsel.

Explore Bitget’s platform resources and Bitget Wallet for custody and account setup if these services are available in your jurisdiction. Always verify product availability and regulatory compliance locally.

Further exploration: review issuer prospectuses, use broker screeners to compare yield-to-call and liquidity, and maintain a checklist before entering positions.

More practical guides and tools are available in brokerage education centers; consider starting with a small position and observing dividend and call behavior over time.

The content above has been sourced from the internet and generated using AI. For high-quality content, please visit Bitget Academy.