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. Trust Preferred Securities - TruPS

    A security similar to debentures and preferreds that is generally ...
  4. Real Estate Investment Trust - ...

    A security that sells like a stock on the major exchanges and ...
  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. Under what circumstances might a company decide to liquidate?

    There are many reasons a company may decide to liquidate. A smaller company may decide to liquidate if one of the main owners ... Read Full Answer >>
  4. What happens to the shares of a company that has been liquidated?

    The fate of a liquidating company’s shares depends on the type of liquidation the company is undergoing. The most common ... Read Full Answer >>
  5. What's the difference between a capital stock and a treasury stock?

    Capital stock and treasury stock describe two different types of a company's shares. Capital stock is the total amount of ... Read Full Answer >>
  6. What is the difference between preference and ordinary shares?

    Preference shares, also known as preferred shares, have the advantage of a higher priority claim to the assets of a corporation ... 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. Mutual Funds & ETFs

    Top 4 High-Yielding Preferred Stock ETFs

    ETFs offer diversification, a clear advantage. Preferred stock ETFs offer even more.
  4. Investing Basics

    What are Ordinary Shares?

    Ordinary shares are any type of shares that are not preferred and don’t pay any type of predetermined dividend amount.
  5. Investing Basics

    What is Capital Stock?

    Capital stock refers to the number of authorized shares a corporation may issue, both common and preferred.
  6. Mutual Funds & ETFs

    Pros and Cons: Preferred Stock ETFs vs. Bond ETFs

    A look at the differences between preferred stock ETFs and bond ETFs and when you should invest in one over the other.
  7. Mutual Funds & ETFs

    Preferred Stock ETFs: Are They Right for You?

    Considering preferred stock ETFs? Here's a look at their pros and cons.
  8. Economics

    Afraid Of A New Financial Crisis?

    It may be time for the U.S. to adopt a model for financial companies that better deters risky financial behavior.
  9. Investing

    Understanding Capital Gains

    Capital gain refers to the increase in value of a capital asset or an investment security upon sale. In other words, if you buy company stock, real estate or fine art and then sell it for more ...
  10. Trading Strategies

    What You Need To Know About Preferred Stock

    Curious about preferred shares? Here's what you should know about these bond-like instruments.

You May Also Like

Hot Definitions
  1. Capital Stock

    The common and preferred stock a company is authorized to issue, according to their corporate charter. Capital stock represents ...
  2. Unearned Revenue

    When an individual or company receives money for a service or product that has yet to be fulfilled. Unearned revenue can ...
  3. Trailing Twelve Months - TTM

    The timeframe of the past 12 months used for reporting financial figures. A company's trailing 12 months is a representation ...
  4. Subordinated Debt

    A loan (or security) that ranks below other loans (or securities) with regard to claims on assets or earnings. Also known ...
  5. International Financial Reporting Standards - IFRS

    A set of international accounting standards stating how particular types of transactions and other events should be reported ...
  6. Geometric Mean

    The average of a set of products, the calculation of which is commonly used to determine the performance results of an investment ...
Trading Center