Preferred shares are one of the investment tools with potential but often overlooked. Suitable for investors who prefer fixed income.

Why Are Preferred Stocks Interesting When Common Stocks Don’t Offer Good Returns

Investors often focus on (Common Stock) because they believe it’s the only way to hold shares and receive a share of the company’s profits. However, in reality, Preferred Stock (Preferred Stock) also offers a valuable alternative. This is not a new concept, but many people still do not fully understand what kind of instrument it is, what advantages it has, and where to buy and sell it.

Preferred Stock: A Capital Instrument with Superior Rights

Preferred Stock (Preferred Stock) is a hybrid capital instrument with features similar to common stock. Holders of preferred stock own a part of the company but have distinct advantages.

Main differences between preferred stock and common stock:

• Voting Rights: Preferred stockholders do not have voting rights at shareholder meetings, unlike common stockholders.

• Dividend Priority: When the company makes a profit and decides to pay dividends, preferred stockholders receive their dividends first, at a fixed amount set from the start. There is no additional risk. Common stock dividends are uncertain; they may be higher, lower, or not paid at all depending on the company’s performance.

• Liquidation Priority: In the event of liquidation, loss, or dissolution, remaining assets after settling debts and expenses are distributed first to preferred stockholders, then to common stockholders.

This is the strength of preferred stock — they receive payments first, although they lack voting rights, in exchange for greater security.

Types of Preferred Stocks You Should Know

Not all preferred stocks are the same; they are designed with different conditions that affect the benefits investors receive.

Cumulative and Non-Cumulative Preferred Stocks: If the company skips dividend payments in some years, the unpaid dividends are accumulated (Cumulative) or not (Non-Cumulative), depending on the type held by the investor.

Redeemable and Non-Redeemable Preferred Stocks: The company may have the right to buy back preferred stocks at a specified time and price (Redeemable) or have no such right (Non-Redeemable).

Convertible Preferred Stocks: Some special types allow investors to convert into common stock at an appropriate time, adding flexibility.

Participating and Non-Participating Preferred Stocks: Participating preferred stocks receive dividends at a fixed rate, while non-participating ones do not.

Pros and Cons - Who Should Consider Buying

Advantages of preferred stock:

• Receive dividends before common stocks, often higher
• Priority in asset payments, lower risk
• Suitable for institutional investors due to tax benefits
• More stable cash flow

Disadvantages to be aware of:

• No voting rights at shareholder meetings
• Very low liquidity; hard to sell and may not fetch a good price
• Requires long-term investment planning; not suitable for short-term trading

Who should buy preferred stocks:

• Conservative investors seeking risk reduction
• Those looking for steady income over the long term
• Companies and institutions seeking tax benefits

How to Buy and Sell Preferred Stocks

Trading preferred stocks can be done through two channels:

Channel 1: Primary Market (Primary Market) Investors follow news about new preferred stock issuance, submit their subscription and pay according to the company’s offer. Afterward, the shares are transferred to the subscriber’s name, can be kept as share certificates, deposited in a securities account, or transferred to a trading account with a broker.

Channel 2: Secondary Market ###Secondary Market( If not following issuance news or wanting to trade existing preferred stocks, investors can use their regular trading accounts.

In the Stock Exchange of Thailand, there are currently 8 preferred stocks: BH-P, CSC-P, JUTHA-P, KTB-P, SCB-P, TCAP-P, TISCO-P, and U-P.

)Real Example: KTB-P (Krung Thai Bank Preferred Stock)

Comparing dividends between KTB-P and KTB common stock:

• 2021: KTB-P pays 0.4295 THB vs. KTB pays 0.275 THB (Higher Preferred)
• 2020: KTB-P pays 0.9075 THB vs. KTB pays 0.753 THB (Higher Preferred)
• 2019: KTB-P pays 0.8725 THB vs. KTB pays 0.718 THB Higher Preferred

For investors who do not need voting rights but focus on cash flow from dividends, choosing KTB-P might be better than KTB common stock.

However, if you want to sell preferred stock before the redemption date, you must sell on the secondary market, which has low liquidity and may require selling at a less favorable price. Therefore, investing in preferred stocks should be a long-term decision with a clear investment plan, rather than a short-term trading approach.

Summary: Preferred Stock as a Tool for Safe-Investors

Preferred stock is not a new concept but often overlooked, partly because it lacks voting rights. In reality, for investors seeking:

• High and stable dividends
• Safer assets
• Long-term growth without the need to vote

Preferred stocks can meet these needs very well. Besides receiving dividends and assets before common stockholders, they often pay higher dividends than common stocks. If investors do not need voting rights at meetings and plan to hold their investments long-term, owning preferred stocks can reduce risk and create opportunities for sustainable growth.