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According to this quote from InvestingAnswers, a preferred stock might have a call date and a maturity date. But, if a preferred stock has both, it would seem the issuer is not going to pay out twice. Does one take precedence over the other? How does this work?

When is it Called and Does it Mature?

Most preferreds have a "call date." On this pre-set date or anytime after, the issuer has the option to buy back the shares from you. If the company decides to do that, they would pay you the par value in cash for each share you own. Companies don't call their preferreds very often since they have to come up with the cash to do it.

Some preferred shares may also have a "maturity date." When the shares mature, the company gives you back the cash value of the shares when issued. Maturity dates give you some downside protection, since no matter how low the price goes while you're holding a preferred stock, at maturity you will get back the issue price (unless the company goes bankrupt or liquidates).

I am assuming that par value, cash value, and issue price are all referring to the same thing.

  • I'm not aware of any preferred shares having both a call date and a maturity date. Can you provide and example of such a pref. Reading the quoted literature, it may simply be an unfortunate choice of wording, giving the impression that some prefs have both dates. – Nick Aug 22 '16 at 2:46
  • Thanks. If it is simply ambiguous wording and a preferred will have only a call or a maturity, is the difference only that the call is an option the issuer can exercise whereas the maturity is an obligation the issuer must meet? – Schemer Aug 22 '16 at 8:50
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    Yes. With a maturity date, the issuer is legally obliged to buy back the prefs on the maturity date at the issue price (par price). With a call date, the issue can buy back the prefs at any time on or after the call date, with no limit. While you are probably not in Canada, the prefs market is essentially the same in all developed markets. You may find it useful to have a look at the background and actual data in this annual report on the Canadian prefs market : smlibrary.com/media/documents/Research-and-Reports/… . – Nick Aug 22 '16 at 14:30
  • Thanks. Got an answer from a professional risk manager today. Maturites on prefs are rare but, on maturity, a pref is simply redeemed at some previously agreed upon value (maybe par). This differs from a call only in that the call is an option held by the issuer whereas a maturity is automatically transacted absent any options to extend. I guess because maturities are rare it was hard to find much information about it and this article truly did have some "unfortunate" wording. :) – Schemer Aug 23 '16 at 0:38
  • Whoops. Didn't see your previous comment until I hit enter on my last one. Many thanks for your help and the link. – Schemer Aug 23 '16 at 0:39
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QuantumOnline is a great source for information un US preferred stocks. From their Income Investing Basics page:

When is a preferred callable?

Generally, preferred stocks are callable after five years from the date of issue. Callable means that the issuer has the right to call or redeem a preferred stock after the five years are up but is not obligated to call the preferred stock. In other words, the issuer will call (redeem) a preferred stock when it is to their benefit to do so. That means that they will call a preferred stock when interest rates have dropped from the date of issue but they will not call a preferred stock when interest rates have stayed the same or risen during the period.

In general, an issuer will call an existing preferred and issue a new one when interest rates have dropped sufficiently so that they can issue a new preferred with an dividend rate at least 1% lower than the existing preferred. The 1% lower rate is necessary to cover their costs of calling the existing preferred and issuing a new preferred. Of course, an issuer might also call a preferred when they have sufficient funds available to cover the amount of the call and no longer wish to continue to pay the dividends for an existing preferred.

In any event, an investor needs to be aware of when a preferred stock is callable and make their decisions accordingly. Generally when buying income securities an investor would like a call date 3 to 5 years in the future. The QOL tables specify the call date (see the Call Date column) for all recently issued securities listed on the table.

Maturity Dates

Generally the maturity date of preferreds is not of much interest to income investors. First, that is because traditional preferred stocks do not have a maturity date - they are perpetual securities. Trust preferreds do have maturity dates but since those dates are currently 20 to 50 years in the future they will not have much effect on most preferred investors.

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