No. of Recommendations: 0
I don't really know, but I would guess that preferred stock has a fixed dividend, while "common" shares do not. Therefore, if you borrow funds at the preferred rate and then speculate on the change in bond values from interest rate changes etc, you could conceivably earn capital gains that exceeded your borrowing costs. This would let you earn more in your closed end bond fund than you would from interest on the bond holdings alone.

Of course the scenario can work in reverse with the result that common stock owners earn less than interest on the bonds themselves after they have paid off the loan costs. Management of this fund had better be on its toes.
Print the post  


When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.