how buy preferred stock — Step-by-step Guide

How to buy preferred stock

Short summary

Preferred stock is a hybrid equity security with bond-like features: preferred shareholders get dividend priority over common shareholders and higher claim in liquidation, often with fixed or variable dividends. This article explains how buy preferred stock in public markets, why investors choose preferreds, the different types and structural terms to read in the prospectus, a step-by-step execution checklist, where retail and institutional investors access these securities, and practical trade examples. Read on to learn how buy preferred stock safely and how to use broker tools, ETFs, and screening metrics to build a preferred allocation that fits your goals.

Definition and overview

Preferred stock (preferred shares) is a class of equity issued by corporations that mixes features of common stock and bonds. Preferreds typically:

• Pay dividends before any dividends are paid to common shareholders.
• Have higher priority than common stock in a company's capital structure on liquidation, but generally rank below debt.
• Often pay a fixed or formula-based dividend and sometimes have features such as convertibility, callability, or rate-reset mechanics.

Companies that frequently issue preferred stock include banks, utilities, real estate investment trusts (REITs), and insurance companies. Preferreds are used by issuers to raise capital while avoiding additional common-share dilution or traditional fixed-rate debt.

Why investors might buy preferred stock: income-focused investors often like preferreds because they may offer higher yields than common dividends and often have more stable payout policies. Preferreds can be useful for portfolio diversification and for investors seeking income with some equity characteristics. That said, preferreds carry interest-rate sensitivity, credit risk, and liquidity considerations that differ from corporate bonds.

Types and structural characteristics of preferred stock

Preferred securities come in many structural forms. Knowing the subtype is critical when you evaluate how buy preferred stock and how it may behave in your portfolio.

Fixed-rate preferreds

Fixed-rate preferreds pay a stated dividend (for example, $6.25 per $25 share annually). Their market prices behave similarly to long-duration instruments: when market interest rates rise, existing fixed-rate preferred prices typically fall, and vice versa. Fixed-rate issues are straightforward to value using current yield and yield-to-call calculations.

Fixed-to-floating and rate-reset preferreds

Some preferreds convert from a fixed dividend to a floating-rate coupon at a predetermined date (fixed-to-floating) or reset the rate periodically (rate-reset). These structures reduce interest-rate sensitivity after the reset and can trade differently from fixed-rate preferreds. When evaluating these, review the reset formula and reference index (often Treasury yields or LIBOR/SONIA proxies).

Cumulative vs non-cumulative preferreds

Cumulative preferreds accrue missed dividends: if the issuer skips a dividend, the unpaid amount accumulates and must be paid before common dividends. Non-cumulative preferreds do not oblige the issuer to pay missed dividends later. Cumulative status matters for income reliability and for interpreting any missed-payment events.

Convertible preferreds

Convertible preferreds can be converted into a specified number of common shares under terms in the prospectus. Conversion is attractive when the issuer’s common stock price rises above the effective conversion price, offering upside tied to common equity performance. Convertible preferreds often trade with a mix of yield and equity upside potential.

Callable preferreds

Many preferreds are callable: the issuer can redeem the shares at a specified call price on or after a call date. Callability caps upside (if the issue is called at par when market price is higher) and makes yield-to-call a key valuation metric. Always check call dates and redemption terms when you consider how buy preferred stock.

Par values and trading venues ($25 exchange-listed vs $1,000 OTC)

Retail-friendly preferred stock is often issued in $25 par denominations and trades on major exchanges (NYSE, NASDAQ). Institutional preferreds are frequently issued at $1,000 par and trade in over-the-counter (OTC) institutional markets, with lower retail accessibility and different liquidity patterns. Retail investors typically find more listed $25 par issues; institutions buy many $1,000-par OTC issues.

Ticker naming and series conventions

Preferred tickers often include suffixes or letter codes indicating the series (e.g., bank issues may show “-PR” or “/PrA” style notations across different platforms). Always confirm the exact ticker/suffix before trading: entering the wrong ticker can mean buying a different series or a common share instead of the preferred series.

Why investors buy preferred stock

Investors choose preferreds for several reasons:

• Income: preferreds frequently offer higher yields than the issuer’s common dividend or comparably rated corporate debt.
• Priority: preferred dividends have priority over common dividends and preferreds rank higher in liquidation than common stock.
• Relative stability: for some preferreds, especially those with cumulative dividends, payouts are more stable than common dividends.
• Diversification: preferreds can diversify income sources by combining equity-linked credit exposure with fixed-income features.
• Tax advantages for some investors: certain corporate investors may benefit from dividend-received deductions; tax treatment for individual investors depends on dividend qualification rules and jurisdiction.

Risks and downsides

Preferred stock is not risk-free. Key risks to consider when you decide how buy preferred stock include:

Interest-rate sensitivity and duration-like behavior

Preferreds, particularly fixed-rate ones, often behave like long-duration bonds. Rising interest rates can materially reduce market prices.

Credit and issuer risk

Preferred holders are exposed to the issuer's creditworthiness. Preferreds are junior to debt; during stress, dividends may be suspended and principal value impaired. Check issuer fundamentals and any ratings from agencies (S&P, Moody’s, Fitch) where available.

Liquidity and wide bid-ask spreads

Many preferreds trade infrequently, which can lead to wide bid-ask spreads and higher transaction costs. Execution price risk is real—market orders can be costly; limit orders are usually safer.

Call risk and limited upside

Callable preferreds can be redeemed by the issuer at the call price, capping long-term price appreciation and often making yield-to-call the relevant yield measure rather than yield-to-maturity.

Limited voting rights and uncertain capital appreciation

Preferred shareholders generally have limited or no voting rights and typically little participation in extraordinary appreciation of the issuer's equity.

Preparing to buy: research and selection

Before you place a trade, prepare with a clear research process so you know exactly what you own and how it may behave.

Use screeners and watchlists

Preferred-specific screeners (available at broker platforms and financial portals) help filter by yield, type (fixed, rate-reset, convertible), call date, credit rating, and issuer sector. Build watchlists for preferred issues you want to monitor.

Evaluate credit ratings and prospectus/terms

Check available credit ratings and, critically, read the prospectus or indenture. Key terms to review: dividend type (cumulative or non-cumulative), call provisions and call dates, conversion terms (if convertible), seniority relative to other capital, and any special covenants.

Yield measures and valuation metrics

Understand and compare:

• Current yield = annual dividend / market price.
• Yield-to-call (YTC) = yield calculated assuming a call at the next call date and call price.
• Premium/discount to par = (market price - par) / par.
• Spread vs Treasuries = yield difference between the preferred and comparable-maturity Treasury.

Yield-to-call is often the most relevant metric for callable preferreds; for perpetual preferreds without a scheduled call, current yield and spread to benchmarks guide valuation.

How to buy preferred stock — step-by-step guide

Below is a practical checklist that answers the core question of how buy preferred stock for most retail investors.

Step 1 — Compare credit ratings and issuer fundamentals

Start by checking ratings from S&P, Moody’s, and Fitch where available and reviewing the issuer’s financial statements. For many bank and insurance preferreds, regulatory capital structures and capital actions matter. Align issuer risk with your risk appetite.

Step 2 — Choose a brokerage and open an account

Select a broker with preferred-stock search tools, reasonable commissions and execution quality, and access to the venue you need (exchange-listed vs any necessary OTC access). Many retail brokers list exchange-traded $25-par preferreds; institutional OTC issues may be harder to access. Examples of retail-friendly brokers with educational resources include Charles Schwab and Fidelity; some platforms like Robinhood also list exchange traded preferreds but may have varying research tools. Consider fees, order types, and trade confirmations.

If you trade through a broker not offering direct access to OTC $1,000-par issues, you can still invest via preferred ETFs or funds (see Where to buy preferred stock).

Step 3 — Decide amount and position sizing

Start small if you’re new to preferreds. Because of liquidity and issuer concentration risks, diversify across issuers and sectors (e.g., don’t hold all bank preferreds). Consider account type and tax implications before buying (taxable brokerage, IRA, or institutional account).

Step 4 — Place your order (how to execute)

• Confirm the correct ticker and series suffix.
• Use limit orders rather than market orders to control execution price, particularly with illiquid issues and wide spreads.
• Be mindful of order size relative to average daily volume; large orders may move the market.

Step 5 — Post-trade monitoring and actions

After execution, monitor dividend payments, issuer credit changes, call or conversion notices, and any corporate actions. Set alerts for call dates and for changes in credit ratings or market price that materially change the investment thesis.

Where to buy preferred stock

Exchange-listed preferreds (retail access)

Many preferreds are listed on major exchanges in $25 par denominations and are accessible to retail investors through standard brokerage accounts. These are often the simplest route for retail participation.

OTC institutional market ($1,000 par)

A significant portion of preferred issuance is $1,000-par institutional preferreds that trade OTC. These issues are often bought by mutual funds, banks, insurance companies, and other institutions. Retail access can be limited; some brokers will facilitate access, but liquidity and minimums differ.

Preferred ETFs and mutual funds

Preferred-focused ETFs and mutual funds pool many preferred issues, giving retail investors diversified exposure with a single trade. ETFs often provide daily liquidity and professional management of credit risk, call risk, and sector allocation. Examples of commonly cited preferred ETFs exist in the market; evaluate fees, spread, and tracking behavior before investing.

Closed-end funds and other pooled vehicles

Closed-end funds (CEFs) frequently invest in preferreds and similar income instruments. CEFs can trade at premiums or discounts to net asset value and often use leverage, so compare fund structure, fees, and discount/premium behavior.

Brokers, platforms and practical tools

When deciding how buy preferred stock, compare broker features:

• Commission and fees: trading costs matter, especially with wide spreads.
• Preferred screeners and research: does the broker offer filters for yield, call date, type, and rating?
• OTC access: can the broker execute institutional OTC trades if you need a $1,000-par issue?
• Execution quality: check reviews for fill rates and trade execution.
• Educational resources: broker research from Schwab, Fidelity and other listed firms can be helpful for preferred security research.

For investors seeking broader access and crypto-related services, Bitget provides trading solutions and wallet services (Bitget Wallet) for Web3 assets. For preferred stock trading in the public equities market, choose a regulated broker that lists exchange-traded preferreds or supports order routing to the venue you require.

Pricing, valuation and common calculations

Key calculations when you buy preferred stock:

• Current yield = (annual dividend) / (market price).
• Yield-to-call (YTC): solve for the internal rate of return assuming the issuer calls at the scheduled call date and price.
• Premium/discount to par = 100 * (market price - par) / par.
• Spread vs Treasuries = preferred yield - yield of a comparable-maturity Treasury.

Yield-to-call is particularly important for callable preferreds because issuers commonly call when market rates decline or when refinancing at a lower cost is attractive.

Tax and regulatory considerations

Tax treatment varies by jurisdiction.

• For many U.S. individual investors, preferred dividends may or may not qualify for the lower qualified dividend tax rate — it depends on holding period and the issuer. Check local rules.
• Some institutional investors can claim a dividend-received deduction for corporate dividends.

Always consult a tax advisor about your specific situation.

Institutional vs retail considerations

Institutions often buy $1,000-par OTC preferreds at scale because they can negotiate execution and hold size. Institutional investors may also access detailed indenture terms and use dividend-received deduction advantages. Retail investors generally focus on $25-par exchange-listed preferreds or funds/ETFs that pool preferred exposure.

Common mistakes and investor tips

When learning how buy preferred stock, avoid these common errors:

• Entering the wrong ticker or series suffix — always verify the exact series.
• Ignoring call risk — check next call date and yield-to-call.
• Over-concentration in one issuer or sector — diversify across issuers and types.
• Buying illiquid issues without limit orders — use limit orders to control price.
• Failing to read prospectus terms — dividend type, cumulative status, and call provisions are critical.

Practical tips:

• Use limit orders and smaller initial position sizes.
• Monitor call calendars and issuer credit news.
• Consider ETFs for easier diversification if you lack time to research individual issues.

Example trade walkthrough (hypothetical)

This example shows how buy preferred stock from research to monitoring.

1. Research: Use a preferred screener to identify a bank-issued $25-par fixed-rate preferred with a current yield near peer levels and a call date three years out. Confirm issuer fundamentals and any available rating.
2. Confirm ticker: Verify the exact ticker symbol and series suffix on your broker’s platform.
3. Order sizing: Decide to buy $5,000 worth (200 shares at $25 par equivalent price). Confirm liquidity (average daily volume) to avoid market impact.
4. Execution: Place a limit order at a price slightly below ask to improve execution chances. Avoid market orders.
5. Post-trade: Set alerts for dividend payment dates, the next call date, and any rating changes. Re-evaluate position size if the price moves materially or the issuer’s credit profile changes.

Alternatives to buying individual preferred shares

If direct ownership is not ideal, consider:

• Preferred-focused ETFs or mutual funds: diversified, liquid exposure with professional management.
• Corporate bonds: higher seniority in capital structure but different tax and liquidity profiles.
• High-dividend common stocks: equity upside with variable dividends and voting rights.
• CDs or bank products: FDIC-insured alternatives for conservative income needs.

Each alternative trades off yield, risk, liquidity, and fees.

Glossary of key terms

• Cumulative: missed dividends accrue and must be paid before common dividends.
• Callable: issuer can redeem (call) the preferred at or after a call date.
• Convertible: can be converted into common shares per specified terms.
• Par value: the face value of the preferred issue (often $25 or $1,000 in different markets).
• Yield-to-call: the yield assuming the issuer calls the security at the next call date.
• Rate-reset: dividend rate resets periodically according to a reference rate.
• Floating coupon: dividend that varies with a reference rate.
• Qualified dividend: a U.S. tax term indicating dividend income that may be taxed at lower capital-gains rates.
• OTC: over-the-counter trading venue, often used for institutional preferreds.

Frequently asked questions (FAQs)

Q: Can retail investors buy $1,000-par institutional preferreds? A: Retail access to $1,000-par OTC preferreds is limited. Some brokers facilitate access, but many retail investors prefer $25-par exchange-listed issues or preferred ETFs for easier access.

Q: What happens if a preferred issuer skips dividends? A: For cumulative preferreds, missed dividends accrue and are owed prior to common dividends. For non-cumulative preferreds, skipped dividends are not accrued and may not be paid later.

Q: How do I find the correct preferred ticker? A: Use your broker’s preferred screener or the issuer’s investor relations page, and confirm the series suffix shown on your trading platform. Ticker suffixes can differ across platforms.

Q: Should I be concerned about call risk? A: Yes. If the issuer calls the preferred at par when market prices are above par, your capital gain potential may be capped. Yield-to-call is often the proper measure for callable issues.

Q: How do I evaluate interest-rate risk for preferreds? A: Examine coupon type (fixed vs floating), call schedule, and comparable-duration measures. Fixed-rate perpetual preferreds typically have higher interest-rate sensitivity.

Reporting example and market context (timely note)

As of January 21, 2026, per Decrypt reporting, a notable corporate example illustrates how preferred stock variants can be used as strategic financing tools. Strategy (MSTR) increased its use of perpetual preferred equity, with its perpetual preferred equity reported at $8.36 billion, larger than its convertible debt of $8.21 billion (Decrypt, January 21, 2026). That trend highlights the role of perpetual preferreds and variable-rate instruments (for example, Series STRC) in corporate capital planning. These instruments can provide permanent capital but create ongoing dividend obligations; credit, market, and funding dynamics should be carefully reviewed when assessing similar securities. (Source: Decrypt, reported January 21, 2026.)

Note: the Strategy example is included to illustrate structural uses of preferred-like instruments in corporate finance. It does not recommend buying any specific issue. Always consult issuer filings and prospectuses for the exact terms and risks.

References and further reading

Sources used in preparing this guide include materials that explain preferred stock features and buying mechanics: Benzinga, Zacks, Charles Schwab, Fidelity, Investopedia, Bankrate, Cohen & Steers, and educational content from broker platforms and video explainers. For live data and issuer-specific terms, consult official prospectuses and issuer filings and check credit agency reports (S&P, Moody’s, Fitch) where available.

Final notes and next steps

If you want to explore preferred exposure without selecting individual issues, consider preferred-focused ETFs or managed funds to gain diversified access. If you prefer direct ownership, set up a watchlist, confirm tickers carefully, use limit orders, and size positions conservatively.

To learn more about trading infrastructure and wallets for broader asset management, explore Bitget products and educational resources — and consider consulting a licensed financial or tax professional before making decisions tailored to your circumstances.

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References (selected): Benzinga; Zacks; Charles Schwab; Fidelity; Investopedia; Bankrate; Cohen & Steers; Decrypt (reporting on perpetual preferred equity, January 21, 2026).