Preferred Stock Yield Calculator

Preferred stock investments offer a unique blend of fixed income and equity-like characteristics, making them a popular choice for investors seeking stable income. To evaluate their profitability, one critical metric is the Preferred Stock Yield. On this page, we’ll explore what Preferred Stock Yield is, how to calculate it, and how to use our Preferred Stock Yield Calculator effectively.

• What Is Preferred Stock Yield?
• Key Formulas for Preferred Stock Yield
• How to Use the Preferred Stock Yield Calculator

What Is Preferred Stock Yield?

The Preferred Stock Yield represents the annual return an investor earns from a preferred stock, expressed as a percentage of the stock's current market price. It’s a vital measure to determine whether an investment aligns with your income objectives.

Preferred stocks typically pay fixed dividends, making their yield more predictable compared to common stocks. Investors often use this yield to compare different preferred stocks or assess their relative attractiveness against bonds or other fixed-income securities.

Key Formulas for Preferred Stock Yield

Basic Yield Formula

\text{Yield} = \dfrac{\text{Annual Dividend}}{ \text{Market Price}} \times 100

Where:

• Annual Dividend (D): The total annual dividend paid by the stock.
• Market Price (P): The current price of the preferred stock.

Yield-to-Call (YTC) Formula

If the preferred stock is callable (i.e., the issuer has the option to buy it back at a predetermined price), investors may calculate the Yield-to-Call (YTC):

\text{Yield-to-Call} = \dfrac{\text{Annual Dividend} + \frac{\text{Call Price} - \text{Market Price}}{\text{Years To Call}}}{ \text{Market Price}} \times 100

• Call Price: The price at which the stock can be redeemed by the issuer.
• Years to Call: The number of years until the stock may be called.

How to Use the Preferred Stock Yield Calculator

Calculator Inputs

• Annual Dividend (D): Enter the yearly dividend paid by the preferred stock.
• Market Price (P): Provide the current stock price.
• Call Price (optional): Input the call price if the stock is callable.
• Years to Call (optional): Specify the years until the call date.

Results Provided

• Basic Yield: The straightforward yield based on dividend and market price.
• Yield-to-Call: If applicable, the calculator will compute the yield-to-call for callable stocks.

Examples of Preferred Stock Yield Calculation

Example 1: Basic Yield Calculation

• Annual Dividend: $5
• Market Price: $100

\text{Yield} = \dfrac{5}{ 100} \times 100 = 5 \%

The yield is 5%, meaning you earn $5 annually for every $100 invested.

Example 2: Yield-to-Call Calculation

• Annual Dividend: $5
• Market Price: $95
• Call Price: $100
• Years to Call: 5

Calculation:

\text{Yield-to-Call} = \dfrac{5 + \frac{100 - 95}{5}}{ 95} \times 100 = 6.32 \%

The yield-to-call is 6.32%, factoring in both dividends and the potential price gain from the call option.