Taxable Preferred Securities

AAA

DEFINITION of 'Taxable Preferred Securities '

A type of preferred equity security that does not qualify for the dividends-received deduction for corporations of typical preferred securities, defined in Section 243 of the Internal Revenue Service (IRS) Code. Taxable preferred securities are usually junior level liabilities, and the coupons tied to them can either be fixed or variable, and for indefinite or specific maturities.

As with regular preferred stocks, these securities trade like bonds with regular denominations of $25 par and $1,000 par. The dividends paid are treated as regular income instead of dividends to the investor, but receive favorable tax treatment for the issuing company.

Also known as "hybrid preferred securities".

INVESTOPEDIA EXPLAINS 'Taxable Preferred Securities '

The tax treatment of these securities is more favorable for corporations and less for investors, causing them to typically trade at higher yield spreads than regular preferreds. This type of security started to take off in the mid-1990s. Their proliferation has led to several funds and exchange-traded funds that invest solely in taxable preferreds.

The $25 par securities are usually bought and sold by retail investors, whereas institutional investors primarily deal in the $1,000 par securities.

RELATED TERMS
  1. Par Value

    The face value of a bond. Par value for a share refers to the ...
  2. Preferred Stock

    A class of ownership in a corporation that has a higher claim ...
  3. Real Estate Investment Trust - ...

    A security that sells like a stock on the major exchanges and ...
  4. Trust Preferred Securities - TruPS

    A security similar to debentures and preferreds that is generally ...
  5. Unit Investment Trust - UIT

    An investment company that offers a fixed, unmanaged portfolio, ...
  6. Taxable Gain

    A profit on the sale of an asset that is subject to taxation. ...
RELATED FAQS
  1. Why do some preferred stocks have a higher yield than common stocks?

    Before we answer this question, let's just take a quick review of what a stock's yield is actually measuring. The yield is ... Read Full Answer >>
  2. Can preferred stocks be traded like common stocks? Are their prices the same?

    First, let's look at the differences and similarities between common stocks and preferred stocks. Both represent a piece ... Read Full Answer >>
  3. Is a company's paid in capital affected by the trading of its shares in the secondary ...

    The amount of paid-in capital a company has is not affected by the trading of its shares on the secondary market. Paid-in ... Read Full Answer >>
  4. Why is the value of capital stock important to public shareholders?

    The value of a company's capital stock is important to public shareholders, because a company's capital stock represents ... Read Full Answer >>
  5. How do changes in capital stock illustrate the overall health of a company?

    Changes in capital stock normally illustrate that the overall health of a company is strong, and that it is seeking to raise ... Read Full Answer >>
  6. What is the importance of calculating tax equivalent bond yield?

    Fixed-income investors measure portfolio returns using yields. Since most bonds do not produce high returns like equity markets, ... Read Full Answer >>
Related Articles
  1. Bonds & Fixed Income

    A Primer On Preferred Stocks

    Offering both income and relative security, these uncommon shares may work for you.
  2. Bonds & Fixed Income

    Introduction To Convertible Preferred Shares

    These securities offer an answer for investors who want the profit potential of stocks but not the risk.
  3. Professionals

    How to Best Navigate Taxes in Retirement

    Here's a rundown on tax strategies that can help extend the life of a nest egg.
  4. Savings

    5 Things to Look for in a Private Banker

    When putting all your assets into one private banker basket, it pays to proceed with caution.
  5. Taxes

    10 Little Known Ways To Reduce Your 401(k) Taxes

    These clever strategies will help you hold onto your money – so you'll have more available for your retirement.
  6. Investing

    Do You Need A Private Banker?

    They offer well-heeled clients unparalleled convenience, but could be prone to certain conflicts of interest.
  7. Investing Basics

    Explaining Net Tangible Assets

    Net tangible assets is a company’s total assets subtracting both intangible assets (such as goodwill and intellectual property) and total liabilities.
  8. Retirement

    Do You Owe Taxes On Your 401(k) When You Retire?

    The taxes you owe on your 401(k) at retirement depend on whether your funds are in a regular 401(k) or the Roth type. You may need tax help to work it out.
  9. Investing Basics

    Explaining the Wash Sale Rule

    The wash sale rule is a provision that prohibits taxpayers from creating artificial losses by selling stocks and bonds at a loss, then repurchasing them.
  10. Mutual Funds & ETFs

    How to Find the Best Bets in Muni Bonds

    Approach investing in municipal bonds the same as you would investing in stocks.

You May Also Like

Hot Definitions
  1. Treasury Yield

    The return on investment, expressed as a percentage, on the debt obligations of the U.S. government. Treasuries are considered ...
  2. Bund

    A bond issued by Germany's federal government, or the German word for "bond." Bunds are the German equivalent of U.S. Treasury ...
  3. European Central Bank - ECB

    The central bank responsible for the monetary system of the European Union (EU) and the euro currency. The bank was formed ...
  4. Quantitative Easing

    An unconventional monetary policy in which a central bank purchases private sector financial assets in order to lower interest ...
  5. Current Account Deficit

    A measurement of a country’s trade in which the value of goods and services it imports exceeds the value of goods and services ...
  6. International Monetary Fund - IMF

    An international organization created for the purpose of: 1. Promoting global monetary and exchange stability. 2. Facilitating ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!