If you are an income investor, it could make sense for you to look into owning preferred shares. This is because for income and dividend investors, owning preferred shares has many benefits, most of which I cover below.
But other investors who want to limit their risk should also consider investing in preferred stock as well.
Truth be told, preferred shares make a lot of sense for many investors, but are often overlooked for common shares. By understanding the many benefits to preferred stocks, you could find a better investment option to complete your portfolio.
#1. Fixed Dividend That Takes Precedence
When dividends are paid, preferred stock owners get paid before common shareowners. While most companies make it a point to distribute enough of a dividend to pay both preferred stockholders and common shareholders, there have been some instances when only preferred stock holders get paid a dividend.
So if you want to ensure that you do get paid a dividend when a company announces a dividend payment, be sure to own preferred stocks instead of common stock.
#2. Ability To Collect Unpaid Dividends
One great benefit of owning preferred stock is the ability to collect unpaid dividends. If a company suspends dividend payments for some reason, as a preferred stock holder, you can still collect the unpaid dividends when the company starts repaying dividends.
For example, if another financial crisis hits and a company stops paying their annual dividend of $2.00 per share for two years before restarting payment, you collect this unpaid dividend when they begin to pay again.
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So if you own 100 shares, you will get paid $400 of the unpaid dividends and then the current $200 dividend as well.