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How to Buy Preferred Stock

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Did you know that more than 1 type of stock is available for purchase on the market? A preferred stock is a combination of both stock and bond and entitles its owner to a number of benefits over an owner of common stock.

Though you can purchase preferred stock similar to how you’d purchase common stock, owners of preferred stock should have a better understanding of investment risk and pay closer attention to stock performance.

How to Buy Preferred Stock:

  • Step 1: Look at the credit ranking of preferred stocks and compare the companies you’re interested in.
  • Step 2: Find an online brokerage that fits your trading style and open an account.
  • Step 3: Figure out how much you want to invest in the company.
  • Step 4: Place your order with your broker.
  • Step 5: Keep close tabs on your investments and adjust as your financial goals change.

The Difference Between Preferred Stock vs. Common Stock

Common stock and preferred stock are similar in a number of ways — they both entitle the holder to a percentage ownership of the company, they’re both bought and sold on the open market and the process for acquiring both types of stock is very similar. Despite these similarities, the differences between each type of stock are as follows. 

Common Stock

As its name suggests, common stock is usually the type of stock you purchase when trading unless otherwise specified. Owners of common stock make the most money when they sell their holdings.

The value of common stock fluctuates with the movement of the market, so common stockholders aim to buy their stocks at a low price and sell when the value increases. Common stock is considered more risky than preferred stock because they are highly volatile and not guaranteed to return dividends.

Preferred Stock

Preferred stock carries less risk than common stock because it receives higher and more frequent dividends. Unlike common stockholders, preferred stockholders receive fixed dividends on a predetermined schedule. These dividends are not subject to the ebb and flow of the general market.

If a company declares bankruptcy, preferred stockholders receive payouts before common stockholders. However, preferred stock may be “callable,” meaning that the company can purchase the stock back at any time, for any reason.

Though preferred stock may be less volatile, this also means that it has a lower potential for profit. Preferred stock options are usually a better idea for investors closer to retirement or those with a lower risk tolerance. Watch the video below for more detail.

How to Purchase Preferred Stock

Believe that preferred stock is the right choice for you? Follow these steps to add preferred stock to your list of assets.

Step 1: Compare the credit ratings of preferred stock of different companies.

Like bonds, preferred stocks carry a credit rating that you can see before you decide to buy. Preferred stocks with a higher credit rating will carry less risk than those with lower ratings. To check the credit ratings of your preferred stock, visit Standard & Poor’s global site, create an account, and search for a company using the “Find a Rating” tab.  

Step 2: Compare online brokerage firms and open an account.

Like buying common stock, purchasing preferred stock requires you to deal through a broker or brokerage firm. There are a large number of brokerage firms that now operate online which allow you to open an account with a low minimum balance and trade. Each broker comes along with a unique set of advantages and disadvantages.

Consider a number of factors, including trading support, commissions, fees, ease of platform use, and brand reputation before opening an account. Not sure where to start? Check out Benzinga’s list of the best online brokerage firms for a crash course in choosing a broker.

Here are some of our favorites: 

Best For
Intermediate Traders and Investors
Overall Rating
Get started securely through Webull’s website
Best For
Intermediate Traders and Investors
N/A
1 Minute Review

Webull, founded in 2017, is a mobile app-based brokerage that features commission-free stock and exchange-traded fund (ETF) trading. It’s regulated by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA).

Webull offers active traders technical indicators, economic calendars, ratings from research agencies, margin trading and short-selling. Webull’s trading platform is designed for intermediate and experienced traders, although beginning traders can also benefit.

Webull is widely considered one of the best Robinhood alternatives.

Best For
  • Active traders
  • Intermediate traders
  • Advanced traders
Pros
  • Commission-free trading in over 5,000 different stocks and ETFs
  • No account maintenance fees or software platform fees
  • No charges to open and maintain an account
  • Leverage of 4:1 on margin trades made the same day and leverage of 2:1 on trades held overnight
  • Intuitive trading platform with technical and fundamental analysis tools
Cons
  • Does not support trading in mutual funds, bonds or OTC stocks
Best For
Beginners
Overall Rating
get started securely through Robinhood’s website
Best For
Beginners
N/A
1 Minute Review

Robinhood is the broker for traders who want a simple, easy-to-understand layout without all the bells and whistles other brokers offer. Though its trading options and account types are limited, even an absolute beginner can quickly master Robinhood’s intuitive and streamlined platform. On the other hand, more advanced traders might be frustrated by Robinhood’s lack of technical analysis tools, a feature that’s now nearly universal across other platforms.

Best For
  • Beginner traders
  • Mobile traders
Pros
  • Streamlined, easy-to-understand interface
  • Mobile app with full capabilities
  • Can buy and sell cryptocurrency
Cons
  • Almost no trading analysis tools available
  • Only taxable brokerage accounts available
  • No option to open a retirement account
  • No access to mutual funds, forex or futures trading
  • Limited customer service
Best For
Options Trading
Overall Rating
Get started securely through TD Ameritrade’s website
Best For
Options Trading
N/A
1 Minute Review

This publicly listed discount broker, which is in existence for over four decades, is service-intensive, offering intuitive and powerful investment tools. Especially, with equity investing, a flat fee is charged, with the firm claiming that it charges no trade minimum, no data fees, and no platform fees. Though it is pricier than many other discount brokers, what tilts the scales in its favor is its well-rounded service offerings and the quality and value it offers its clients.

Best For
  • Novice investors
  • Retirement savers
  • Day traders
Pros
  • World-class trading platforms
  • Detailed research reports and Education Center
  • Assets ranging from stocks and ETFs to derivatives like futures and options
Cons
  • Thinkorswim can be overwhelming to inexperienced traders
  • Derivatives trading more costly than some competitors
  • Expensive margin rates
Best For
Inexpensive Options Trading
Overall Rating
get started securely through Tradier’s website
Best For
Inexpensive Options Trading
N/A
1 Minute Review

Tradier is a high-tech broker made with the most active traders in mind. Tradier differentiates itself by using Application Programming Interface (API) technology to partner with popular trading software to offer a wide range of platform choices to Investors. Tradier brokerage offers integration with one of the widest ranges of platforms we’ve seen, including Esignal, Orion Multi Trader, Stockstotrade, 1Option, Evati, and many, many more. 

Tradier offers 2 pricing options — infrequent traders may want to opt for Tradier’s 0 Stocks and $0.35 per Options contract trading, while very active traders can often save money by opting into Tradier’s $30 monthly all-inclusive option and Equity, which cuts commissions entirely.

Tradier TradeHawk platform is exceptionally impressive, combining intuitive 1-click order placements with a vast range of indicators and charting tools. TradeHawk is also completely compatible with both Apple and Android mobile devices. Though we’d love to see Tradier expand into mutual funds and offer a bit more in the way of educational tools, the broker remains a top choice for advanced traders and those looking for enhanced customization options.

Best For
  • Very active options traders who would benefit from a flat-rate monthly charge instead of per-contract fees.
  • Advanced traders looking for a customizable broker with a wide range of platforms that can be integrated.
  • Prominent options traders get high-quality execution, real-time market data and subscription trading.
Pros
  • Wide range of integrated platforms provide an option for any trader.
  • All-inclusive per-month subscriptions available in lieu of per-contract commissions can potentially save very active traders hundreds of dollars a month.
  • Platforms are powered by quality real-time market data and execution.
  • Paper trading and Sandbox building mode allows particularly tech-savvy traders to create a platform and strategies customized to their preferences and needs.
  • Exceptionally affordable margin rates.
Cons
  • While good for active traders, newer traders may prefer a platform with fewer integration choices and a more streamlined approach.
  • No online mutual funds currently available.

Step 3: Decide how many shares you want to purchase.

Follow your stock of choice for at least a week before you make sure you’re buying at a low price. A common mistake that beginners make when executing their 1st trade is to buy too much in an effort to lower the effects of their broker’s commission.

A much better strategy is to be conservative, buy a few shares and see how they do in the coming weeks. Purchase more if they perform well. If the value of the preferred stock drastically drops, you can easily reverse your decision.

Step 4: Place your order with your broker.

Once you’ve decided how many shares you’d like to buy, use your brokerage’s trading platform to request a buy. Though the specific mechanisms of how to execute your trade will depend on your platform, most brokerage firms have a specific tab or page dedicated solely to buying and selling stock.

Enter the name of the stock, your order type and the number of stocks you’d like to buy. Your broker will handle the rest and you’ll soon see your new stocks in your account.  

Step 5: Monitor your stock’s performance.

Preferred stock is a more stable investment than common stock, so you won’t have to check in on its performance daily. However, you should make time to evaluate your stock’s performance at least once a year and recalibrate your portfolio to remove underperforming assets.

Check Out Preferred Stocks

Common stock has a higher potential to increase drastically in value, but it can also lose its value in an instant. Check out preferred stocks or purchase bonds to hedge your risk.

Near retirement? Simply don’t want to risk your savings? Preferred stocks are less volatile and can retain value to provide more security as you invest. 

Ready to start investing in preferred stock? Check out Benzinga’s guide on how to create an investing strategy.

Frequently Asked Questions

What is a preferred dividend?

1
What is a preferred dividend?
asked
1

A preferred dividend is one that’s accrued and paid on a company’s preferred shares. In the event that a company is unable to pay all the dividends, preferred dividends are paid first over dividends that are paid on common shares. Preferred stock pays much higher dividend rates than common stock of the same company — it’s the main benefit to owning preferred shares.

answered

How do preferred stocks trade compared to common stocks?

1
How do preferred stocks trade compared to common stocks?
asked
1

Preferred stocks trade the same way as common stocks — it usually occurs through a brokerage firm and with the same transaction costs.

Common and preferred stock prices offered by the same company differ. Preferred stocks tend to be more stable because of their regular income stream and common stock is often more volatile.

answered

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