Investing in REITs: Real Estate Investment Trusts, 4th Edition

Preferred Stocks

Many investors seeking higher yields have become interested in preferred stocks, some of which have been issued by REITs. Unlike bonds, however, preferred stocks do not represent a promise by the issuing company to repay a specific amount at a specified date in the future; furthermore, in the event of liquidation or bankruptcy, preferred shareholders' rights are subordinated to those of the corporation's creditors. However, holders of preferred stock do have seniority relative to common shareholders, and most preferred stocks specify that common dividends cannot be paid unless preferred dividends are current.

Accordingly, preferred stocks are treated as “equity” by the credit rating agencies, and many companies like to issue ...