Callable Preferred Stock
 |
Definition of 'Callable Preferred Stock'A type of preferred stock in which the issuer has the right to call in or redeem the stock at a preset price after a defined date. The terms of a callable preferred stock issue, such as the call price, the date after which it can be called, and the call premium (if any) are all defined in the prospectus at the time of issue and cannot be changed later. As with regular preferred shares, dividends on callable preferred shares must be paid by the issuer ahead of any dividends on its common shares. Also known as "redeemable preferred stock" or "callable preferred shares." |
 |
Investopedia explains 'Callable Preferred Stock'A callable preferred stock issue is advantageous to the issuer, since it confers the flexibility to lower the issuer's cost of capital if interest rates decline or if it can issue preferred stock later at a lower dividend rate. For example, a company that has issued callable preferred stock with a 7% dividend rate is quite likely to call the issue if it can issue new preferreds carrying a 4% dividend rate.The investor who holds callable preferreds, on the other hand, is at a disadvantage. If the preferred issue is called by the issuer, the investor will most likely be faced with the prospect of reinvesting the proceeds at a lower dividend or interest rate. The call premium that the issuer pledges to pay at redemption of the preferred issue is meant to compensate the investor for part of this reinvestment risk. |
Related Definitions
Articles Of Interest
-
A Primer On Preferred Stocks
Offering both income and relative security, these uncommon shares may work for you. -
What is the difference between preferred stock and common stock?
Preferred and common stocks are different in two key aspects. First, preferred stockholders have a greater claim to a company's assets and earnings. This is true during the good times when the ... -
Stock Basics Tutorial
If you're new to the stock market and want the basics, this is the tutorial for you! -
Weighted Average Cost Of Capital (WACC)
Weighted average cost of capital may be hard to calculate, but it's a solid way to measure investment quality -
Guide To Embedded Options In Bonds
Investors should be aware of embedded options that may be available in certain securities as these options may affect the value of the security. -
Visual Guide To Investing In Preferred Stock ETFs
Preferred stock ETFs have become a big hit with some investors. Find out why! -
$1 Salaried CEOs Making Millions
Some CEOs who are paid $1 annually are actually among the highest-paid when all forms of compensation are taken into account. -
How Will Your Investment Make Money?
Discover the basic types of investment income and which asset classes pay them. -
How To Live Off Your Dividends
One way to enhance your retirement income is to invest in dividend paying stocks and mutual funds. -
Introduction To Convertible Preferred Shares
These securities offer an answer for investors who want the profit potential of stocks but not the risk.
Free Annual Reports