Enter Values
Key Formulas
Yield Analysis
Formula Breakdown
Model Assumptions
- Perpetual preferred stock (no maturity date)
- Dividends paid at stated annual rate
- Single call date scenario (first call)
- No dividend changes before call
- Qualified dividend rate assumed at 20% (federal)
For educational purposes. Not financial advice.
Yield Interpretation
| Metric | Meaning | When to Use |
|---|---|---|
| Current Yield | Income return at current price | If not called |
| Yield to Call | Total return if called | If called at first date |
| Yield to Worst | Minimum expected return | Conservative analysis |
Understanding Preferred Stock Yields
What is Preferred Stock?
Preferred stock is a hybrid security that combines features of both stocks and bonds. Like bonds, preferreds typically pay fixed dividends and have a par value. Like stocks, they represent ownership and dividends can be suspended (though they often accumulate). Most retail preferreds trade around $25 par value.
Understanding the Yield Metrics
Current Yield
Annual dividend divided by current price. This is the income return you receive if you buy today and hold indefinitely without the preferred being called.
Yield to Call
Total annualized return if held until the call date, including dividends and capital gain/loss from redemption at the call price.
Understanding Call Risk
Call risk is the risk that an issuer will redeem a preferred before you want to sell it:
- High call risk: Price above call price. If called, you lose money on the principal.
- Medium call risk: Price near call price. Small capital impact if called.
- Low call risk: Price well below call price. Issuer has less incentive to call.
Tax Considerations
Qualified dividends from most corporate preferreds are taxed at lower capital gains rates (0%, 15%, or 20%) rather than ordinary income rates. The tax-equivalent yield helps compare preferreds to taxable bonds. Note that REIT and BDC preferreds typically pay non-qualified dividends taxed as ordinary income.
Frequently Asked Questions
Disclaimer
This calculator is for educational purposes only and assumes perpetual preferred stock with annual dividend payments. Actual preferred securities may have different structures, call schedules, and tax treatments. Consult a financial advisor and review the prospectus before investing. This tool should not be used as the sole basis for investment decisions.
Course by Ryan O'Connell, CFA, FRM
Fixed Income Investing Course
Master fixed income investing from fundamentals to advanced strategies. Covers bonds, preferreds, yield analysis, duration, and portfolio construction.
- Bond pricing, yields, and duration
- Credit analysis and risk assessment
- Preferred securities and hybrid instruments
- Portfolio construction strategies
