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Preferred Dividend (Definition) | Formula | Example - YouTube
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friends we have not we have topic
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which is preferred dividend
well preferred dividend is a fixed
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dividend that is received from the
preferred stock not this what we call an
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in definition but we'll try to get into
the nitty-gritty of this particular topic
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what does this exactly means see it means that if you are it say a preferred
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shareholder or I'll just write over here
as PS you would get a fixed percentage
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or dividend every year
I repeat every year it's like a fixed
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interest song and the most of the
beneficial part of this preferred stock
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is that in know the preferred shareholders
gets a higher the rate of dividend so
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they are also given you know you can say
more preference than equity shareholders
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in terms of the dividend payment now
look at the screenshot over here this is
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a diner shipping company the dividend
history preference shares on the NYSE--
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that new york stock exchange you see 0.3759 and and so on and so forth
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somewhere it is constant so this is how
the dividend are been paid it was just
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an earth this extract was just an
example to show you how exactly things
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work but there is a very simple formula
for calculating the preferred dividend
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on the preferred stock preferred
dividend
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as equal to what we say value
into rate of dividend into the number of
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before share so this is gonna be the for
the preferred dividend if the preferred
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shareholders once - let's say invest in
the preferred stock so they need to look
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at what we called as prospectus maybe
the preferred shareholders wants to
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invest they need to have prospectus they
need two basic things know what are the
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two basic things the first one is what
is the value of the stock and second
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thing what is the rate of
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Dividend
now once they know that there's two
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basic things they can simply multiply
this two component and can understand
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how much they would receive at the end
of each year so the graded one bit of
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investing in preferred stop is that it
is like a fixed instrument it's like a
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fixed instrument and you are assured of
the what we call as the fixed payment
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every plus you know if the form gets
bankrupt let's say if the form gets
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bankrupt any day you will be given
preference over the equity shareholders
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and it means that you know if a company
becomes bankrupt before equity shoulders
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are paid back you will get the amount
due to you so you don't need to worry
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your money is in the safe they could
issue owners will be the one last so
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once you know how to calculate the
preferred of it per share you would just
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need to what we call as multiply number
of shares the the preferred dividend that
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has been the dividend per share so and you would know how much each year you would
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get or you would get each year now let's
take an example of the preferred
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so that you know
convert this earth here it'll be nine do
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some practical numbers so let's take a
simple example to see you know how
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prefer to dividend is calculate let's say
is a person called Usala has invested in
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let's say the preferred stock of a firm
and as the prospectus is she will get a
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preferred dividend
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of 8% of the Par value
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far value of the stock all far value of
the shares actually not the stock stock
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would be an incorrect word the par value
of you know over here each share is
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let's say standing at $100 and Urusual
has bought let's say 1,000 of such
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preferred stock so how much the
preferred dividend she will get each
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year or every year the basic two things
to calculate the preferred dividend you
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know they are given right in front of us
so we know that the rate of dividend and
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also the par value of each stock so by
using the preferred dividend formula we
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get
par value
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into the rate of dividend into the
number of preferred stock well this
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should be simple 100*8%
into number of shares that's
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1000 so $8000 it
means every year Urusual will get
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$8,000 as preferred dividend
now let's understand some of the common
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feature of what we call as preferred
dividend the first is higher dividend
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rates see preferred dividends are much
higher than the rate of equity common
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stock so the reason for this because the
preference shareholders do not have the
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ownership frequency control over the
company hence to attract the investors
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our higher or dividend R of them second
there is a fixed percentage so unlike
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the dividend or common or equity stock
which keeps on fluctuating every year
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depending on the profitability ratios of
the company you can say the the
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preferred dividends did not fluctuate
their rate do not fluctuate and the rate
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remains unchanged throughout the
maturity life of the preference shares
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third there is also one major reason for
the fluctuation of the dividend the
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common stock so dividend rates on the
common stocks they are recommended by
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these shareholders and during the annual
general meetings the company hence you
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know it keeps on fluctuating since you
know the shareholders decides the rates
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keeping in mind the profitability and
the future outlook of the company let's
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understand the third this is the feature
as the cumulative or arrears of
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dividend
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now one of the important feature of the
preferred dividend is that it no
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shareholders they are entitled to
preferred dividend every year
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irrespective of the profitability of the
company
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sometime what exactly happens you know
on account of the business contingencies
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or business exist exigencies a company
may not be in a position to be a
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shareholders in such circumstances the
dividends they are accumulated and are
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paid in the subsequent year
so let's understand the impact of one of
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the business exigencies on the payment
of the preference dividend with the help
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of practical illustration let's say
there's a company called Company X which
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has let's a 3 million outstanding
5% preferring preferred shares
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as on 31st of December 2016
now the par value of the preferred
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shares is let's say standing at 10 each
and the cash balance available with the
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company is let's say $1,000,000 so the
preference dividend to be paid for the
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year 2015 has to be 3 million right into
10
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x 5 we need to close the bracket
that will be divided by in total
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100 divide this by 100 so that is
it 1.5 million that's see available
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that's the preferred dividend to be paid
and the available let's say cash balance
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is only 1 million so I'll just write 1
so in the above case it's not possible
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for the company the dividend to be paid
is 1 to be 1.5 million available cash is
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1 so it was not possible for the company
to play the preferred dividend sure the
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shareholder since you know the total
available cash is completely less than
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the total amount of the preferred
dividend lab since the dividend are
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always paid you know in cash its
shortage will force the company to
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withhold the payments of the dividend
for the year 2016 so in the above case
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you know the dividend will get
accumulated and must eventually be paid
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to preferred shareholders in a
subsequent financial well that's it for
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this particular topic for the preferred
dividend we have discussed the example
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formula and some of the features so
that's it for this particular topic if
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