投资学全英文ppt17.ppt

Web Chapter 16Investing in Preferred Stocks Copyright 2014 Pearson Education,Inc.All rights reserved.16-2 Preferred Stocks and Convertible SecuritiesLearning Goals1.Describe the basic features of preferred stock,including sources of value and exposure to risk.2.Discuss the rights and claims of preferred stockholders,and note some of the popular issue characteristics often found with these securities.3.Understand the various measures of investment worth,and identify several investment strategies that can be used with preferred stocks.Copyright 2014 Pearson Education,Inc.All rights reserved.16-3 Characteristics of Preferred StocksHybrid security with characteristics of stocks and bondsPreferred stockholders have a prior claim(ahead of common)on the income and assets of the issuing companyDividends are a fixed amounta fixed dollar amount or a percentage of the stocks par valueInvestment quality is rated like bondsCopyright 2014 Pearson Education,Inc.All rights reserved.16-4 Advantages of Preferred StockDividend income is highly predictableDividends yields are similar to yields on high credit quality bondsGenerally safe investments with good track record of paying dividendsEasy to purchase due to low unit costIf interest rates fall,preferred values generally riseCopyright 2014 Pearson Education,Inc.All rights reserved.16-5 Disadvantages of Preferred StockMany preferred stock dividends do not qualify for the new preferential tax rate of 15%If interest rates rise,preferred stocks generally fallInvestors dont participate in the capital gains that common stockholders receivePreferred stock does not have the safety of a bond,because dividends can be“passed”Copyright 2014 Pearson Education,Inc.All rights reserved.16-6 Valuing Preferred StockValue is a function of the dividend yield provided.Value moves inversely to interest rates,similar to a bond.The lower the investment quality,the higher the yield.Risk exposure of preferred stocks includes:Business riskInterest rate riskCopyright 2014 Pearson Education,Inc.All rights reserved.16-7 Issue Characteristics of Preferred StockConversion feature:allows holder to convert to a specified number of shares of a companys common stockAdjustable rate/floating rate:the dividend rate changes with the market interest rate rather than letting the value of the stock dropPreference(prior preferred):type of preferred that has seniority over other preferred to receive dividends and claims on assetsCopyright 2014 Pearson Education,Inc.All rights reserved.16-8 Issue Characteristics of Preferred Stock(contd)Cumulative provision:all past unpaid dividends must be paid before common stock dividends are paidIn arrears:past dividends that remain unpaid and are an unfulfilled obligation of the companyNoncumulative provision:company is excused from paying all past unpaid dividendsCopyright 2014 Pearson Education,Inc.All rights reserved.16-9 Key Measures of Preferred StockDividend YieldBook ValueAgency RatingsFixed Charge Coverage Copyright 2014 Pearson Education,Inc.All rights reserved.16-10 Investment Strategies Using Preferred StockTwo Major StrategiesGoing after higher levels of current incomeSeeking capital gains when market rates are fallingLooking for High YieldsUsed by long-term investorsHigh current income is primary objectiveCertainty of income and safety are importantYields typically lower than comparably rated bondsCopyright 2014 Pearson Education,Inc.All rights reserved.16-11 Investment Strategies Using Preferred Stock(contd)Trading on Interest Rate SwingsInvestors buy on interest rate declinesShort-term strategy Capital gains are the primary objectiveSpeculating on TurnaroundsLook for stocks with speculative ratings and dividends in arrears that are about to undergo a substantial turnaroundSpeculative and highly riskyReturns“capped”at price of other investment-grade preferred stocksCopyright 2014 Pearson Education,Inc.All rights reserved.16-12 Figure 16.1 Price Pattern of a Hypothetical Preferred Turnaround CandidateCopyright 2014 Pearson Education,Inc.All rights reserved.16-13 Chapter 16 ReviewLearning Goals1.Describe the basic features of preferred stock,including sources of value and exposure to risk.2.Discuss the rights and claims of preferred stockholders,and note some of the popular issue characteristics often found with these securities.3.Understand the various measures of investment worth,and identify several investment strategies that can be used with preferred stocks.Copyright 2014 Pearson Education,Inc.All rights reserved.16-14 Table 16.1 Sample Yields Provided by Preferred Stock