Dividend Treatment

• Preferred stockholders receive preferential treatment regarding dividends. When companies declare dividends, the company must pay the preferred stockholders first dividends. Preferred stockholders receive the amount of dividend payment which is stated on their individual share. Some preferred stockholders receive dividend payments as a specified dollar amount per share. Other preferred stockholders receive their dividend payment as a percentage of par value.
  
  

Preferred Stock Features

• Preferred stock contains many features that make it attractive to investors. These features include being participating, cumulative or convertible. After the preferred stockholders receive their initial dividend payment, the participating feature allows the preferred stockholder to share in the remaining dividends payment with the common stockholders. Cumulative preferred stock requires that all dividends not paid out in prior years be paid to the preferred stockholders before anything can be paid to the common stockholders. Convertible preferred stock allows the investor to convert her shares to common stock.
  
  

Preferred Dividend Yield

• The preferred dividend yield allows the investor to determine how much income he has earned from this investment and may potentially earn in the future. Investors calculate this ratio by dividing the annual dividend payment by the current market price. The investor determines the current market price by reviewing the stock pages online or in the newspaper. The investor determines the dividend payment by using the stated dividend rate for each share of preferred stock. The higher the preferred dividend yield, the greater potential income for the investor.
  
  

EBITDA Coverage Ratio

• The EBITDA coverage ratio allows the investor to measure how well the company manages its debt and preferred stock dividend payments. Investors calculate EBITDA by adding the interest, income taxes, depreciation and amortization back to the company's net income. The investor then adds the interest expense to the preferred stock dividends and divides EBITDA by this total. The investor obtains these numbers from the company's income statement. The higher the EBITDA coverage ratio, the greater the company's ability to meet its interest payment and preferred stock dividend obligations.