From an investor's viewpoint, are dividends expected to be paid on preferred stock riskier than dividends...

From an investor's viewpoint, are dividends expected to be paid on preferred stock riskier than dividends expected to be paid on common stock, all other things equal?

Solutions

Expert Solution

Dividends which are expected to be paid on preferred stock are are not riskier because preference dividend are mostly secured in nature as whether the company is making the profit or the loss, these Dividends are to be paid by the company as they are preferred dividends, whereas payment of dividends to common stock are not mandatory for the company because stock are representing the ownership of the company and they are not entitled to receive the dividend whereas the preference shareholders will be entitled to receive the dividend.

Preference shareholder is a hybrid mix of equity and debt so These Dividend are generally mandatory payments because they are mostly Cumulative dividend and they have to be paid by the company under any circumstances even if company is making loss by accumulating to the next year, so these preference dividend are less risky than the equity dividend because Equity dividend are not mandatory payments for the company.

So, it can be summarised that dividend which are expected to be paid on preferred stocks are not riskier than equity dividend.

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

Everyone agrees stock A is riskier than stock B, but they have the same expected return....

Everyone agrees stock A is riskier than stock B, but they have the same expected return. (a) Which would you prefer to buy? Why? (i) Stock A. (ii) Stock B. (b) In order for someone to want to hold the stock, you don't like, what would have to happen to the price of that stock, assuming the other stock remains unchanged? Why? (i) Price goes up. (ii) Price goes down. (c) If the price changes as described in (b), what...

Write a paragraph discussing the differences between common stock and preferred stock from the investor's perspective...

Write a paragraph discussing the differences between common stock and preferred stock from the investor's perspective for this company. Comment specifically on dividends, potential for the future increase in share price and risks. Thanks,

If the dividends paid on a preferred stock issue are $3.5 per share and the price...

If the dividends paid on a preferred stock issue are $3.5 per share and the price of the stock after subtracting flotation costs is $25, calculate cost of preferred stock. 16.77% 14.00% 15.56% 7.78% none of the answers is correct Praxair Inc has a project with initial investment requiring $-120,000 and the following cash flows will be generated for the following 5 years at the end of each year because of the project: $30,000; $140,000; $176,000; $50,000; and $80,000 respectively....

Calculate the annual cash dividends required to be paid for each of the following preferred stock...

Calculate the annual cash dividends required to be paid for each of the following preferred stock issues: Required: $4.00 cumulative preferred, no par value; 290,000 shares authorized, 129,000 shares issued. (The treasury stock caption of the stockholders' equity section of the balance sheet indicates that 40,713 shares of this preferred stock issue are owned by the company.) (Round your answer to 2 decimal places.) 5%, $50 par value preferred, 214,000 shares authorized, 156,000 shares issued, and 72,734 shares outstanding. (Round...

The common stock of NCP paid $1.35 in dividends last year. Dividends are expected to grow...

The common stock of NCP paid $1.35 in dividends last year. Dividends are expected to grow at an annual rate of 7.90 percent for an indefinite number of years. a. If NCP's current market price is $22.93 per share, what is the stock's expected rate of return? b. If your required rate of return is 9.9 percent, what is the value of the stock for you? c. Should you make the investment?

The common stock of NCP paid ?$1.31 in dividends last year. Dividends are expected to grow...

The common stock of NCP paid ?$1.31 in dividends last year. Dividends are expected to grow at an annual rate of 7.40 percent for an indefinite number of years. a. If your required rate of return is 9.70 percent?, what is the value of the stock for? you? b. Should you make the? investment?

The common stock of NCP paid $1.25 in dividends last year. Dividends are expected to grow...

The common stock of NCP paid $1.25 in dividends last year. Dividends are expected to grow at an annual rate of 9.10 percent for an indefinite number of years. a. If NCP's current market price is $27.95 per share, the stock's expected rate of return is____%. (Round to two decimal places.) b. If your required rate of return is 11.1 percent, the value of the stock would be $ _____. (Round to the nearest cent.) c. You should (buy or...

A stock just paid a dividend this morning of $1.30. Dividends are expected to grow at...

A stock just paid a dividend this morning of $1.30. Dividends are expected to grow at 14.00% for the next two years. After year 2, dividends are expected to grow at 8.06 % for the following three years. At that point, dividends are expected to grow at a rate of 6.00% forever. If investors require a return of 15.00% to own the stock, what is its intrinsic value?

Preferred stock A pays dividends quarterly. Preferred stock B pays dividends annually. All else equal, which...

Preferred stock A pays dividends quarterly. Preferred stock B pays dividends annually. All else equal, which will have the higher value? A B A=B

If a preferred stock from the FIN340 Company pays $1.00 in annual dividends and the required...

If a preferred stock from the FIN340 Company pays $1.00 in annual dividends and the required return on the preferred stock is 5.0%, what is the current value of the stock? A fast growing firm paid a dividend of $1.00 per share during the most recent year, The dividend is expected to increase at a rate of 20.0% per year for the next 3 years , Afterwards, a more stable 5.00% annual growth rate should be assumed - If a...

Subjects