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Preferred stock (using MINDP as an example)


CafeB
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Setting aside Fannie and Freddie and bank preferreds, what factors to consider for preferred stock?

 

As an example, MIND is unprofitable and has been funding its operations in part by selling preferred stock, MINDP, through ATM programs and a recent underwritten offering.

MINDP closed at $24.24 on November 8, with ~1.22 million shares outstanding. On November 9, ~0.43 million shares priced at $24.25.

MINDP pays a cumulative dividend of $2.25 per year. At $18, Friday's close, yield 12.5%; at around $20, as it was for much of the past week, 11.25%.

The company has no debt.

 

Damodaran has described preferred stock as "more debt than equity, and very expensive debt at that, since it does not provide a tax deduction." First, what can be inferred from a company's choice of preferred over debt that is cheaper? Second, does the current price and yield indicate that the market will not bear further issuance?

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Posted at valueforum.com and received several thoughtful responses.

 

I will summarize and elaborate, because VF does not allow cutting and pasting.

----Illiquidity -- current price and yield might not be indicative

----Preferred as a percentage of equity -- MIND is obviously "top-heavy"

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