Preferred stock issued by a corporation pays a fixed dividend amount each year. This is in contrast to dividends on common stock, which are paid at the discretion of the firm's board of directors. Preferred dividends must be paid before dividends on common stock can be paid.
Your Preferred Dividend Amount
The amount of a preferred dividend is determined by a percentage of the stock's par value established at the time the shares are first issued. You can find this information in the stock's prospectus. The details of preferred dividends also are usually included in a firm's balance sheet and statement of shareholders' equity. These financial statements are part of the company's annual report, which you can get on a firm's investor relations website.
To calculate the annual dividend amount per share, multiply the stated percentage by the par value.
Suppose the prospectus says the stock pays a 6 percent dividend and the par value equals $80 per share. The equation would be:
$80 par value * 0.06 = $4.80 per share
To figure your total dividend earnings for the year, multiply the amount per share by the number of shares you own. For example:
$4.80 dividend per share * 100 shares = $480
Companies typically pay dividends every three months. To calculate the quarterly payment, divide the annual payment by four:
$480/4 = $120 quarterly payment
Dividends in Arrears
Sometimes corporations find themselves in a financial bind and don't pay dividends to their preferred-stock holders. For instance, a firm might have an operating loss one year, and the cash to pay a preferred dividend may not be available. Many preferred stocks are cumulative, which means any missed dividend payments must be made up when the company's financial condition allows.
Dividends in arrears are calculated just like any other preferred dividend. If a preferred stock is not cumulative, the company does not have to pay missed dividends.
Dividends in arrears on cumulative preferred stock must be paid before current preferred dividends and before any common stock dividends are paid.