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I OWN THAT COMPANY!

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asm for investing in individual stocks, with ever-increasing returns, it’s easy to forget what has happened in the past. When it comes to common stocks, there is no such things as either a safe investment, or a guaranteed thing. This is why I generally don’t like my clients to hold more than five percent in an individual stock.

Preferred Stock Just like common stock owners, preferred stock owners own a part of the company. However, there are more rights that come with pre- ferred stock that aren’t associated with common stock. First, pre- ferred stock holders hold the right to be paid their dividends before they are distributed to common shareholders. Second, should the company have to liquidate, preferred shareholders hold the right to receive the par value of their stock before there is any distribution to common shareholders.

Dividends on preferred stock are fixed, much like the interest rates on bonds are. The price of preferred stock also differs from that of common stock, and is affected by interest rate changes. They almost always have a higher dividend yield than common stock does, but preferred stock doesn’t have the growth and price appreciation potential that common stock does because preferred stock doesn’t participate in the corporate earnings growth of the company.

Other features of preferred stock include more voting rights than common shareholders (either more total votes or the ability to elect more directors), the right to receive more than the stated dividend amount in certain conditions, the right to exchange preferred shares for a fixed number of common shares, and the right to cumulation of dividends. Cumulation of dividends may happen if any preferred div- idends have been missed. If this has happened, all prior and current preferred dividends must be paid out before common shareholders receive their dividends.

DIVIDEND REINVESTMENT PLANS

Dividend reinvestment plans (DRPs) are an extremely popular way to increase your holding in a particular stock without any additional

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