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How do you calculate preferred stock dividends?

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Quick Answer

To calculate a preferred stock's dividend, first convert the percentage of dividend into dollars by multiplying it by the stock's par value. Then, divide the dollar amount by the current value of the stock and multiply it by 100, explains W D Adkins for the Houston Chronicle. This calculation gives the percentage yield.

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Full Answer

For example, if the percentage of dividend is 7.5 percent and the par value is $40, convert the percentage of dividend to dollars by multiplying $40 by 0.075 percent, which equals $3, notes Adkins. In this example, if the stock currently trades at $60 per share, divide 3 by 60, which equals 0.05. Multiply 0.05 by 100 to arrive at the annual yield of 5 percent. The per share dollar amount of the dividend never changes in a preferred stock. The par value of the stock is the price of the stock when it is issued.

The percentage of dividend and par value of a preferred stock can be obtained in the prospectus released by the company for the preferred stock. It can also be found on the company's investor relations website or through a broker. If the dividend percentage is close to the rate demanded by the market, the stock trades close to its par value, according to Accounting Coach. If the percentage of dividend is higher than the market demands, the stock trades above its par value. The opposite is true if the percentage of dividend is lower than the market demands.

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