Simple English definitions for legal terms
Read a random definition: tear-me-open license
Callable preferred stock is a type of stock that a company can buy back from shareholders at a predetermined price. This price is usually slightly above the stock's par value. Preferred stockholders receive dividends before common stockholders, but they usually do not have voting rights.
For example, if a company issues callable preferred stock with a par value of $100 and a callable price of $105, the company can buy back the stock from shareholders for $105 per share. This is beneficial for the company if interest rates decrease, as they can issue new stock at a lower rate and buy back the callable preferred stock at a lower price.
Another example is if a company issues callable preferred stock with a dividend rate of 5%. If the company decides to call the stock, they will no longer have to pay the 5% dividend rate to the preferred stockholders.
Callable preferred stock is a way for companies to have more control over their finances and make changes to their capital structure. It is important for investors to be aware of the callable feature when investing in preferred stock.