The Motley Fool Discussion Boards

Previous Page

Investing/Strategies / Bonds & Fixed Income Investments


Subject:  Re: Hybrid/Other Annuities Date:  4/18/2014  10:08 AM
Author:  coolprash Number:  35263 of 36714

This is the way Preferred Shares work:

1. Company makes profits.

2. It pays the dividend on Preferred Shares.

3. It pays dividend on common shares.

PSA has virtually 0 Debt.
PSA preferreds are cumulative (if they can't pay the dividend on the preferred, they can't pay dividend to common and they have to make up the dividend on the preferred before they can make payout to common shares

PSA pays dividend on common so before the preferreds you buy stop the dividends, the commons will have to lose their dividend.

Currently the profits are $ 847 million a year or approx. $4.89/share.
Revenues are $ 1700 million a year.

You can calculate the profitability.

Dangers of buying preferreds.
- They act like bonds, when interest rates go up, the price goes down and vice versa.
- Company can stop the dividend
- In default, they fall below bonds in return of capital.
- NOT qualified dividends (so you pay tax rate at your marginal rate)
- When you wish to sell, you may sell for less than what you bought
- Can be called by the company (the dividend stream stops, you get the face value of the preferred, so if you buy an issue at Discount, you get a nice forced capital gain too)

NEVER buy preferred shares at Market prices, always place limit orders as there is low liquidity in some preferred shares.

More information on preferreds:

If I was in your situation and wanted a higher income, I'd prefer to go with PSA Preferred Share than with an annuity.
Copyright 1996-2020 trademark and the "Fool" logo is a trademark of The Motley Fool, Inc. Contact Us