Preferred shares of stock are different from common shares in several key ways. First of all, while the share price can go up and down, preferred stock is structured more like bonds, with a set dividend payment quarter after quarter. Second, preferred shareholders get priority over common shareholders when it comes to distributing profits preferred dividends must be paid before any common dividends. Finally, preferred shareholders generally don't have voting rights.
Before we get into calculating preferred dividends, there are a few things to know.
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First of all, preferred stocks have a par value which their dividend is based on. A par value of $25 is by far the most common, but $50 isn't unheard of. Next, each preferred stock has a preferred dividend rate, which is set by the company when it issues the shares. As I mentioned earlier, preferred shares can move up and down in price, so their actual dividend yield is based on their current price, as you can see in this chart's sampling of preferred stocks.
Note: Share price and dividend yield current as of 11/8/2015
To calculate the dividend amount of a preferred stock, you need two main pieces of information: the par value and preferred dividend rate. As an example, we'll take a look at the JPMorgan Chase preferred stock listed first in the chart -- with a par value of $25 and preferred dividend rate of 6.7%.
Next, convert the dividend rate into a decimal. In our example, 6.7% translates to 0.067 -- simply divide the percentage by 100 to convert.
Then, multiply the par value by the dividend rate as a percentage. This will give you the annual dividend for each preferred share. In our JPMorgan example,
So, these preferred shares yield $1.675 apiece each year. To calculate the quarterly dividend payments, simply divide this amount by four. Or, if you want to calculate your total preferred stock dividend, multiply the per-share dividend amount by the number of shares you own. So, if you own 500 shares of the JPMorgan preferred stock in our example, your annual dividend income would be
Finally, if your objective is to calculate a company's entire dividend payment to its preferred shareholders, multiply the per-share amount by the total number of preferred shares outstanding. Keep in mind that many companies that issue preferred shares have issued several different series of preferred stock with different par values and preferred dividend rates. For example, as of this writing, Wells Fargo has 23 different series of preferred stock listed on its website. So, in order to determine the total preferred dividend, you'll need to calculate the dividend payment for each series of preferred stock.
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The article How to Calculate Annual Dividends to Preferred Stockholders originally appeared on Fool.com.
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