Enter Values

$
Market price per share
$
Liquidation/redemption value
$
Annual dividend per share
$
Redemption price if called
years
Time until first call date
Tax Comparison (Optional)
%
Federal marginal tax bracket
Key Formulas
Current Yield = Dividend / Price
Coupon Rate = Dividend / Par
YTC = IRR of cash flows to call
YTW = Min(Current Yield, YTC)
Ryan O'Connell, CFA
Calculator by Ryan O'Connell, CFA

Yield Analysis

Current Yield 6.12% Strong
Coupon Rate 6.00%
Yield to Call 6.48%
Yield to Worst 6.12% Strong
Premium/Discount -2.00%
Call Risk Medium
Tax-Equiv. Yield 7.20%

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.
Key Insight: When a preferred trades above its call price, focus on Yield to Call. When it trades below, Current Yield may be more relevant since the issuer is less likely 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.

Download This Calculator as an Excel Template Interactive model with editable formulas — customize, save, and share.
Get Excel Template

Frequently Asked Questions

Preferred stock yield, also called current yield or dividend yield, measures the annual dividend payment as a percentage of the current market price. It is calculated as Annual Dividend divided by Current Price. For example, a $25 par preferred paying $1.50 annually and trading at $24 has a current yield of 6.25%. This differs from the coupon rate, which is calculated using par value instead of market price.

Yield to call (YTC) is the total annualized return you would receive if you bought the preferred at today's price and held it until the issuer calls (redeems) it. It accounts for dividend income plus any capital gain or loss from the difference between your purchase price and the call price. YTC is calculated as the internal rate of return (IRR) of all expected cash flows from purchase to the call date.

Yield to worst (YTW) represents the minimum expected return among possible outcomes. For perpetual callable preferreds, this calculator defines YTW as the lower of current yield or yield to call. If trading below the call price, YTW typically equals current yield since you would prefer the issuer not call. If trading above the call price, YTW equals YTC since a call would lock in a capital loss.

When a preferred trades above its call price, there is high risk the issuer will redeem it, limiting upside and potentially locking in a capital loss for investors who bought at a premium. Preferreds trading at a premium tend to have compressed yields because the call price caps potential appreciation. Investors typically demand higher current yields from preferreds with elevated call risk to compensate for the reinvestment risk.

Most preferred stock dividends from U.S. corporations are qualified dividends, taxed at favorable capital gains rates (0%, 15%, or 20% depending on income) rather than ordinary income rates. However, dividends from REITs, BDCs, and some foreign issuers are typically non-qualified and taxed as ordinary income. The holding period requirement also applies. The tax-equivalent yield calculation helps compare preferreds with different tax treatments to taxable bonds.

Compare the tax-equivalent yield of qualified preferred dividends to corporate bond yields of similar credit quality. Key differences to consider: preferreds rank below bonds but above common stock in the capital structure, most are perpetual (making them more interest rate sensitive), dividends may be suspended while bond interest cannot be skipped, and qualified dividends receive favorable tax treatment that bond interest does not. For a fair comparison, use after-tax yields or tax-equivalent yields.
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.

Related Calculators

Professional finance illustration representing Tax-Equivalent Yield Calculator: Compare Municipal vs Taxable Bonds

Tax-Equivalent Yield Calculator: Compare Municipal vs Taxable Bonds

Compare municipal and taxable bond yields.

Try Calculator →
Professional finance illustration representing Bond Pricing Calculator: Clean Price, Dirty Price, and Accrued Interest

Bond Pricing Calculator: Clean Price, Dirty Price, and Accrued Interest

Calculate clean price, dirty price, and accrued interest for fixed-rate bonds. Supports annual and semi-annual...

Try Calculator →
Professional finance illustration representing Dividend Discount Model Calculator

Dividend Discount Model Calculator

Value stocks using multi-stage dividend discount models. Calculate intrinsic value with variable growth rates for...

Try Calculator →

Need a custom financial model built for your project? Explore Ryan’s freelance financial modeling services.

Sponsored affiliate link

Interactive Brokers

Trade Stocks and ETFs at Interactive Brokers

Review available stocks and ETFs across global markets using Interactive Brokers' web, mobile, and desktop platforms.

  • Global stock and ETF access
  • Fractional shares where available
  • Research and trading tools
Explore IBKR Stocks (opens in a new tab)

Ryan O'Connell Finance may receive compensation from Interactive Brokers if you use this link. The inclusion of Interactive Brokers' (IBKR) name, logo or weblink is present pursuant to an advertising arrangement only. IBKR is not a contributor, reviewer, provider or sponsor of content published on this site, and is not responsible for the accuracy of any products or services discussed. Investing involves risk, including possible loss of principal. Product, market, and platform availability varies by client and jurisdiction.

For additional disclosures visit IBKR disclosures.