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Preferred Stock of Financially Strong Firms Sometimes Sells at Lower

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Essay

Preferred stock of financially strong firms sometimes sells at lower yields than the bonds of those firms.For weaker firms, the opposite holds true.What might explain this pattern?


Definitions:

Sustainable Growth Rate

The maximum rate at which a company can grow its sales, earnings, and dividends without increasing its financial leverage or debt proportion.

Dividend Payout Ratio

The proportion of net income a firm pays out to its shareholders in the form of dividends.

ROA

Return on Assets, a financial ratio indicating the profitability of a company relative to its total assets.

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