The dividend is always calculated based on the par value, correct?
Par value always stays the same.
Question: then why do dividends go up and down?
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Hi @Unlikely_purple_mosq - good question!
The dividend rate on preferred stocks is always based on par value, which is why their dividend payments are fixed (hence, why they’re considered a fixed income security). For example, a $100 par, 5% preferred stock will always pay $5 per share in dividends if approved by the board of directors.
What you might be referring to is common stock. Dividend rates on this type of security are not fixed and typically rise over time. When a corporation elects to pay a dividend on common stock, they declare the dividend on an amount per share basis (e.g. we will pay $1 per share). Common stocks do have par values, but they’re generally unimportant and do not relate to dividend payments.
So, bottom line - dividends are always based on par value for preferred stock (fixed dividends), but it works a bit differently for common stock (variable dividends).
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