Preferred Shares
Like bonds, preferred shares compensate owners with scheduled payments which resemble interest. However, preferred "interest" is actually in the form of a dividend. This is a significant accounting difference as preferred dividends, unlike debt interest, are charged after taxes and below net income, therefore reducing net income and ultimately earnings per share. Preferred shares may also contain conversion privileges which allow for their exchange into common stock.
The dividend yield is the total yearly payments divided by the principal value of the preferred share.
The current yield is those same payments divided by the preferred share's market price.
If the preferred share has a maturity (not always) there can also be a yield to maturity and yield to call calculated, the same way as for bonds.
Read more about this topic: Yield (finance)
Famous quotes containing the words preferred and/or shares:
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—Adele Deleeuw (1899–1988)
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