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What is a Perpetual Preferred Stock?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 30 November 2016
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    Conjecture Corporation
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Perpetual preferred stock is a type of preferred stock that does not carry any type of maturity date. This means that the security will maintain redemption privileges on the shares for as long as the investor retains possession of those shares. As a result, the shareholder will also continue to receive dividend payments from the investment for as long as he or she continues to hold the shares. Conservative investors often hold at least some options of this type, since stock of this type is typically stable and will earn consistent returns without carrying much in the way of risk.

As with all types of preferred stock, perpetual preferred stock provides investors with an investment option that combines the benefits of both an equity security and a debt instrument. Stock issues of this type can usually be converted into shares of common stock but rarely provide the shareholder with voting privileges. In the event that the issuer of perpetual preferred stock should go bankrupt, shareholders with the type of security have seniority over holders of common stock, meaning their claims are addressed first. At the same time, both types of stock options are subordinate to any bonds issued by the bankrupt company.

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There is actually more than one type of perpetual preferred stock. One option is known as cumulative perpetual preferred stock. This particular type of investment opportunity makes it possible for dividends earned in several periods to accumulate, resulting in a cumulative dividend payment to investors. The terms and conditions associated with the stock must specify this type of payment arrangement in order for the issuer to provide cumulative payments. Otherwise, dividend payments are issued for each period, with those payments taking place on or prior to a date range identified in the stock terms.

Perpetual preferred stock is attractive to certain types of investors. Anyone who prefers to focus on investments that carry a low rate of volatility while also providing a consistent and dependable rate of return will like find this option worth considering. Investors who have no interest in participating in the election of corporate officers or voting on other matters faced by the issuing entity will also find this type of stock option is a good fit. For investors who prefer to focus on short-term investments that are more volatile and have the potential to generate higher returns, perpetual preferred stock may be considered an unattractive asset for inclusion in the investment portfolio.

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