Preferred Stock Merits

Investment in preferred stocks may have a number of merits. Chief among them is a reasonable regularity of income coupled with a reasonable safety of principal, since the preferred stockholder is assured of certain rights with respect to the latter. The rate of return on preferred stocks is often slightly higher than that which may be obtained on good-quality bonds. In addition, the high-grade preferred have always shown considerable resistance to market fluctuations. It is to be noted that the better quality preferred stocks are now eagerly sought by insurance companies, trustees, endowment funds, and the like. We hasten to add, however, that all preferred stocks are not alike in quality, so that careful investigation should be made and investment confined only to upper-grade issues.

Those who argue against investment in preferred stocks point out the following features: (a) there is limited return although considerable risks of ownership are borne; (b) there is no enforceable right to dividends, since these must be declared by the board of directors and they may pass one or more dividends at their discretion; (c) the owner of a preferred stock is in a position midway between that of a bondholder (creditor) and that of a common stockholder (partner), so that his stock is "neither fish nor fowl" and his position may eventually prove to be an uncomfortable one.