Comments by "Magic Beans" (@Magic_beans_) on "What is a Preferred Share?" video.

One thing that really stuck with me was when someone observed that preferred stock for a solid company in a relatively reliable industry (banking, real estate, utilities) offers about the same rate as “junk” bonds. If we believe the market to be at least mostly efficient, there has to be a reason for that. Looking at the attributes of preferred stock you can see why the rate is what it is. Preferred stock is essentially an open-ended loan subordinate to the company’s other debt. The company can just pay a fixed amount per year (which because of inflation makes borrowing cheaper for them and less profitable to you each year) and if they run into trouble they can defer or even skip those interest payments. That’s a good amount of uncertainty to take on, so you’d better get paid.
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