2.2.1 Preferred Dividends
As with common stocks, dividend payments for preferred shares often are paid quarterly. Unlike with common stocks, however, dividend payments for preferred shares are determined when the stock is issued. Preferred stock dividends are typically higher than common stock dividends.
A fixed-rate preferred stock may set its dividend payment at a fixed dollar value ($5), or the dividend may be based on a percentage of the par value of the stock, as stated on the stock certificate (5% of $100 par value). A floating-rate, or adjustable-rate, preferred stock will have an adjustable dividend based on a formula tied to another benchmark, such as 3% above the interest rate on 90-day Treasury bills. The rate is reset quarterly, making the prices of adjustable-rate preferred stock less sensitive to interest rate changes than the