Taxable Preferred Securities


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".

BREAKING DOWN '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.

  1. Real Estate Investment Trust - ...

    A REIT is a type of security that invests in real estate through ...
  2. Preferred Stock

    A class of ownership in a corporation that has a higher claim ...
  3. Par Value

    The face value of a bond. Par value for a share refers to the ...
  4. Trust Preferred Securities - TruPS

    A security similar to debentures and preferreds that is generally ...
  5. Taxable Gain

    A profit on the sale of an asset that is subject to taxation. ...
  6. Unit Investment Trust - UIT

    An investment company that offers a fixed, unmanaged portfolio, ...
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 Sell Mutual Funds to Your Clients

    Learn about the various talking points you should cover when discussing mutual funds with clients and how explaining their benefits can help you close the sale.
  4. Taxes

    The 5 Countries Without Income Taxes

    Discover information on some of the best countries to consider relocating to that offer the financial benefit of charging no income tax.
  5. Mutual Funds & ETFs

    Top Three Transportation ETFs

    These three transportation funds attract the majority of sector volume.
  6. Investing Basics

    Statistical Proof That Buy-and-Hold Investing Pays Off

    Learn about how the data suggests that the buy-and-hold investment strategy still works, even after the huge declines of the Great Recession.
  7. Investing Basics

    5 Things To Ask Before Hiring A Financial Advisor

    Choosing a financial advisor isn't an easy task. Here's a list of the most important things to consider when planning for your financial future.
  8. Investing

    5 Recession Resistant Industries

    No companies are completely recession proof, but some industries perform better in a weak economy than others.
  9. Mutual Funds & ETFs

    How to Find Mutual Funds With High Dividends

    Learn about the important factors to consider when looking for mutual funds that pay high dividends, including how they may impact your taxes.
  10. Retirement

    Should Balanced Funds Be Part Of Your Portfolio?

    Find out why you should include balanced funds in your portfolio, including the importance of customizability, diversification and professional management.
  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. Why is the Cayman Islands considered a tax haven?

    The Cayman Islands is one of the most well-known tax havens in the world. Unlike most countries, the Cayman Islands does ... Read Full Answer >>
  4. Why is Luxembourg considered a tax haven?

    Luxembourg has been the tax haven of choice for many corporations and mega-rich individuals around the world since the 197 ... Read Full Answer >>
  5. What are the main kinds of annuities?

    There are two broad categories of annuity: fixed and variable. These categories refer to the manner in which the investment ... Read Full Answer >>
  6. What are the risks of rolling my 401(k) into an annuity?

    Though the appeal of having guaranteed income after retirement is undeniable, there are actually a number of risks to consider ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Gross Profit

    A company's total revenue (equivalent to total sales) minus the cost of goods sold. Gross profit is the profit a company ...
  2. Revenue

    The amount of money that a company actually receives during a specific period, including discounts and deductions for returned ...
  3. Normal Profit

    An economic condition occurring when the difference between a firm’s total revenue and total cost is equal to zero.
  4. Operating Cost

    Expenses associated with the maintenance and administration of a business on a day-to-day basis.
  5. Cost Of Funds

    The interest rate paid by financial institutions for the funds that they deploy in their business. The cost of funds is one ...
  6. Cost Accounting

    A type of accounting process that aims to capture a company's costs of production by assessing the input costs of each step ...
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!