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I found a preferred share with a market price of $6, in its prospectus the par value is $25, and it is redeemable/callable with cumulative dividend of 6% annually.

If I want to buy it, should I only pay $6 or $25? and then if the company decided to call it back, will it pay $25 to me?

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    "... if the company decided to call it back, will it pay $25 to me?" — Not necessarily. With preferred stocks, you really have to read the prospectus because each preferred stock issue has different terms.
    – Flux
    Sep 22 at 7:57
  • What is the name of this preferred stock?
    – Flux
    Sep 22 at 7:57
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    The vast majority of traditional preferred stocks are issued at $25 and therefore they are callable at $25. Non traditional ones such as Mandatory Convertible Preferred stocks have different terms. Sep 22 at 12:45
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    Why would a company call it's preferred shares for $25 if they are only worth $6?
    – D Stanley
    Sep 22 at 13:27
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    @huab Cumulative does not mean mandatory. Cumulative means that if any preferred dividends have been missed in the past, those dividends will have to be paid to the preferred stockholders first before the common shareholders can get any dividends. It is possible for a cumulative preferred stock's dividends to be suspended indefinitely.
    – Flux
    Sep 24 at 0:06
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If the market price is $6 then that is what you would pay for it. And yes, if it was past the call date and the company called the issue, they would pay $25. But why would they pay $25 for something that is only worth $6? Not likely to happen.

While the dividend may be cumulative, it can be suspended. What they owe you accrues but there's no guarantee that you'll ever receive that.

Two very good sources for preferred stock information are Quantum Online and The Innovative Investor.

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In your comment, you mentioned that the preferred stock in question is ALIN-A (Altera Infrastructure L.P., 7.25% Series A Cumulative Redeemable Preferred Units). According to the prospectus, the company will pay $25 per unit when it decides to call the issue.

The problem is that the company is not likely to call the preferred stock anytime soon. Here are some reasons:

  • This is a perpetual preferred stock. The company can refuse to call the preferred stock for as long as they want.
  • Dividends have been suspended, because the company is unable to pay dividends.
  • The company's financial results are poor. Refer to its Form 6-K filed on 2021-07-29.
  • The company has trouble paying its senior debt. Refer to its other Form 6-K filed on 2021-07-29, which announced a debt restructuring to avoid bankruptcy or insolvency. ALIN-A ranks lower than senior debt, so if the company is unable to pay off its debt, it won't be able to pay its preferred stockholders either.
  • The company pays 8.50%-11.50% interest on its senior debt, which is higher than the 7.25% dividends on its preferred stock. There is no incentive for the company to eliminate its preferred stock in such a situation.
  • ALIN-A's issue size is $150 million, a substantial sum for the company at the moment. It simply does not have the money to call the preferred stock.

As a result of all the above, ALIN-A fell from $24 to $9 overnight on 2021-07-29. The preferred stock will not be called anytime soon.

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