No. of Recommendations: 3
Elizabeth,
Life often gets in the way of priorities....
So, I'm looking at my 1 share of preferred stock, WFC-PRL and want to make sure I understand.
First, the difference between yield and coupon. Yield is the percentage of the market price represented by the dividend. In WFC-PRL's (Wells Fargo Preferred Series L, for those listening in) case, the market price of this preferred stock (as of this morning, pre-market open) was $1140.01. The yield for this dividend, those $75.00/yr, would be 6.579%, and since market price varies from day to day, that yield will vary from day to day.
The coupon this stock pays, 7.5%, is relative to the preferred's Call Price (the price Wells must pay to each L series preferred stock holder when Wells wants to buy the preferred stock back and stop paying that particular dividend). In Wells' case, that call price is $1000.00, and that price is fixed forever by the terms of the preferred stock to which Wells committed when it issued the stock in the first place. One little fillip: this preferred stock is perpetual, meaning it lasts forever and has no call date (the date on/after which Wells would be allowed to call the stock; companies issuing preferred stocks with Call Dates cannot call them before that date).
As long as you hold this preferred, you'll always get those $75/yr in dividends/get that 7.5% coupon, regardless of the preferred's market price. You'll get precisely $18.75 per quarter, no "or so" about it.
The reason I blow off market price and yield for the preferreds I buy, other than at the time of purchase, is because I hold preferreds until they're called, so I don't care about market pricing or yield. Market pricing/yield only matters to those who trade preferred stocks--buy and sell them, looking for gains from price changes as well as the dividend income.
Whether holding this preferred stock is better than a treasury depends on a couple of things. WFC-PRL's coupon (and yield, I think; although I've not looked up Treasury coupons or current prices) is higher than Treasuries, but that's only one consideration in the "better or not" question. First and foremost is your sense of safety and risk tolerance. Treasuries are safe and low risk in the sense that the Federal government cannot go bankrupt; it always can print more money to cover its debts, while private companies like Wells can go bankrupt, and investors lose their investment (with preferred stock holders getting a share of the bankrupt's leavings ahead of common stock holders (a holder of WFC, for instance), but they're still well down that totem pole). My personal opinion is that Wells is very unlikely to go bankrupt in your or my lifetime.
Another thing is whether you want to trade this preferred or hold it until Called (or in this case, in perpetuity). You'll always get those $75/yr for as long as you hold it, or until Wells' common stock price gets to/above $203-and-change for those 20 out of 30 consecutive days, at which point Wells can convert this preferred to common stock, but it's not required to do so. WFC currently sits just under $43.
Finally, to get around to answering your opening question, yes, you can buy WFC-PRL at $1139 and get the $75.00 per year dividend. You can buy this preferred (or any other preferred that's still on the market) at any then-market price and get the dividend committed to for as long as you hold that preferred. If XYZ has a preferred stock with a 6% coupon and a Call Price of $100, you'll get those $6/yr dividends whether you buy XYZ-Preferred at a market price of $80 or $120, or at any other price.
Eric Hines
