Although preferred shares offer a dividend, which is usually guaranteed, the payment can be cut if there are not enough earnings to accommodate a distribution; you need to account for this risk. The risk increases as the payout ratio (dividend payment compared to earnings) increases. Also, if the dividend has a chance of growing, then the value of the shares will be higher than the result of the calculation given above.

Preferred shares usually lack the voting rights of common shares.1

U.S. Securities and Exchange Commission. “What Are Stocks?”

This might be a valuable feature to individuals who own large amounts of shares, but for the average investor, this voting right does not have much value. However, you should still consider it when evaluating the marketability of preferred shares.

Preferred shares have an implied value similar to a bond, which means it will move inversely with interest rates. When the market interest rate rises, then the value of preferred shares will fall. This is to account for other investment opportunities and is reflected in the discount rate used.

Something else to note is whether shares have a call provision, which essentially allows a company to take the shares off the market at a predetermined price. If the preferred shares are callable, then purchasers should pay less than they would if there was no call provision. That’s because it’s a benefit to the issuing company because they can essentially issue new shares at a lower dividend payment.

A call provision is included in the subscription agreement.

This is not an invitation to invest, but is merely to outline how preferred shares can work.