Valuing Preferred Stock.

PREFERRED stocks; VALUATION; REVENUE rulings; DIVIDEND yield; STOCKS (Finance); RATE of return; DEBT-to-equity ratio

The article discusses methods for valuing preferred stock. Preferred stock is issued mainly by large companies but is increasingly issued by mid size companies as well. Incorporating traits of both debt and equity, preferred stocks carry additional rights beyond common stock and often have a dividend requirement. Authoritative guidance for valuing preferred stock comes mainly from revenue ruling 59-60, which states the prime factors for determining value are the stock's yield and dividend coverage and payment protection of its liquidation preference. In performing an analysis, the position of the dividend yield in relation to the market can be calculated from fixed-charge ratios and return on equity ratios. Discounts and premiums of normal shares may not apply to preferred shares.