I am working through Chapter 2.3 Suitability. The first sentence under the Cash Dividend section states: “Preferred stock investors primarily seek its fixed dividend income, which is typically paid semi-annually.” However, isn’t it usually paid quarterly?
About two sentences below that, it also reads: “As long as the Board of Directors (BOD)] approves the payment, this investor receives $50,000 in annually (5% x $100 par x 10,000 shares).”
What does “in annually” mean? Is this an error?
Hi, good question! FINRA exams most often test that preferred stock pays dividends quarterly although they could also be paid semi-annualy - the question should indicate the payment schedule!
Thank you for the feedback on the typo of “receives $50,000 in annually” - I’ve just updated this to say “receives $50,000 annually.”
Thanks for responding, Justin. I am still a bit confused since Chapter 2.1, Basic Characteristics, indicates that preferred stocks pay quarterly dividends. It even says to remember this for the test (see asterisk section on screenshot).
Regardless, as I mentioned, test questions will state the payment schedule, so you don’t need to worry about it. We hear of situations in which both quarterly and semi-annual payment schedules are used. It used to be that semi-annual was most common, but now it seems that quarterly is most common.
