How to Buy Preferred Stock
A practical, no-nonsense guide from someone who actually owns 26 series of preferred shares. Where to buy them, how to evaluate them, what to avoid, and what I have learned the hard way.
6 Steps
To Buy
6 Types
Explained
5 Metrics
To Check
6 FAQs
Answered
Why I Wrote This Guide
I have been buying preferred stock since 2013. Not the diversified, “sprinkle some PFF into your portfolio for income” kind. The concentrated, thesis-driven, “put your money where your mouth is” kind.
I own 26 series of Fannie Mae and Freddie Mac junior preferred stock. That is not a typo. Twenty-six series. I have spent over a decade writing about these securities on Seeking Alpha, fighting the government in court, and watching my net worth swing wildly based on tweets from Treasury officials.
So when I tell you how to buy preferred stock, I am not copying a textbook. I am telling you what I actually do with my own money — including the mistakes.
This guide covers everything from opening a brokerage account to placing your first limit order. If you want the deeper theory, read my Complete Guide to Preferred Stocks. This page is about the practical how.
6 Steps to Buy Your First Preferred Stock
From account opening to position monitoring — the complete process with lessons from my own experience.
Open a Brokerage Account
You need a brokerage account that supports OTC and exchange-listed preferred stock trading. Most major brokerages work: Fidelity, Charles Schwab, TD Ameritrade (now Schwab), Interactive Brokers, and E*TRADE all let you buy preferred shares. I personally use Schwab. Avoid brokerages that restrict OTC trading — many GSE preferred shares trade on the OTC markets, not the NYSE.
Glen's tip: Schwab and Fidelity charge $0 commission on listed preferred stocks. OTC preferreds may carry a small fee.
Understand What You Are Buying
A preferred stock is a hybrid security — part bond, part stock. It pays a fixed dividend (like a bond coupon), trades on an exchange or OTC (like a stock), and sits between bonds and common equity in the capital structure. You get paid before common shareholders, but after bondholders. Most preferred shares have a $25 par value and pay quarterly dividends.
Glen's tip: If you only remember one thing: preferred stockholders get paid before common stockholders. That priority is the entire point.
Search for Preferred Stock Tickers
Preferred stock tickers can be confusing. Different brokerages format them differently: Schwab uses FNMAS, Fidelity might show it as FNMA/S or FNMA-S. The same security has different ticker formats at different brokerages. Search by CUSIP number if the ticker doesn't work. Websites like QuantumOnline.com and Preferred Stock Channel list preferred stocks with their details.
Glen's tip: Pro tip: search for the company name + 'preferred' in your brokerage search bar. The results will show all available series.
Evaluate the Key Metrics
Before you buy, check these numbers: current yield (annual dividend / current price), yield-to-call (total return if called at par), par value ($25 for most retail preferreds), credit rating (investment grade = safer, lower yield), and call date (when the issuer can redeem at par). These five numbers tell you 90% of what you need to know.
Glen's tip: If a preferred trades below par, you get higher yield AND potential capital gains. That is the sweet spot.
Place Your Order
Use a limit order, not a market order. Many preferred stocks are thinly traded with wide bid-ask spreads. A market order can fill at a terrible price. Set your limit price between the bid and ask, then be patient. For OTC preferreds, the spread can be $0.25-$1.00 — limit orders protect you from getting ripped off on the spread.
Glen's tip: I have watched people lose hundreds of dollars on a single trade by using market orders on OTC preferreds. Always use limit orders.
Monitor Your Position
Preferred stocks are not buy-and-forget. Track dividend payment dates, watch for call announcements, and monitor the issuer's credit quality. Set up alerts for dividend declarations and any news about the issuer. Interest rate changes affect preferred prices significantly — a Fed rate hike can drop your position 5-10% in a week.
Glen's tip: Check your preferred's ex-dividend date. Buy before it to capture the next payment, or buy after it for a slightly lower price.
Brokerage Comparison for Preferred Stocks
Not every brokerage is created equal for preferred stock investing. OTC access matters.
| Brokerage | Commission | OTC Access |
|---|---|---|
| Charles SchwabGlen's pick | $0 listed / small OTC fee | Yes |
| Fidelity | $0 listed / varies OTC | Yes |
| Interactive Brokers | $0.0035/share min $0.35 | Yes |
| E*TRADE | $0 listed / $6.95 OTC | Yes |
| Robinhood | $0 | No |
Commission data as of 2026. Always verify current rates with your brokerage. Robinhood is listed for comparison but is not recommended for preferred stock investing due to limited OTC access.
Types of Preferred Stock
Before you buy, know what type you are getting. The differences matter enormously.
Cumulative
Best protection
Missed dividends pile up and must be paid in full before common shareholders see a cent. This is the gold standard for preferred stock investors. If a company suspends dividends for three years, they owe you all three years before common dividends can restart.
Non-Cumulative
Higher risk
Missed dividends vanish forever. The issuer has zero obligation to make up skipped payments. Banks love issuing these because regulators let them skip preferred dividends during stress without creating future liabilities. Investors should demand a higher yield for this risk.
Convertible
Upside potential
Can be converted into a set number of common shares, either at your option or automatically upon a trigger. You get the safety of preferred dividends plus potential equity upside if the common stock surges. The conversion ratio determines your effective strike price.
Participating
Extra upside
Receives the stated dividend plus an extra cut based on company performance. If the company earns above a threshold, participating preferred holders share in the upside alongside common shareholders. Rare in public markets but standard in venture capital deals.
Perpetual
Most common
No maturity date — the issuer pays dividends indefinitely unless they call the shares. Most publicly traded preferred stocks are perpetual. Price is heavily driven by interest rates, credit quality, and time to the optional call date. If rates spike, these get hit hardest.
Fixed-to-Floating
Rate sensitive
Pays a fixed rate initially, then switches to a floating rate tied to a benchmark like SOFR. These gained popularity as issuers tried to limit long-term rate exposure. Can be great in rising-rate environments and terrible in falling-rate environments.
For a deeper dive into each type with real-world examples, see my Complete Preferred Stocks Guide.
5 Key Metrics to Check Before Buying
These numbers tell you 90% of what you need to know about any preferred stock. Learn them once, use them forever.
Par Value
The face value of the preferred stock, typically $25 for retail shares. This is what you receive if the company is liquidated or calls the shares. Buying below par means you have built-in margin of safety. Buying above par means you can lose money if the shares are called.
$25 for retail | $1,000 for institutional
Current Yield
Annual dividend divided by the current market price. A $25-par preferred paying $1.75/year that trades at $20 yields 8.75%. This is the number that tells you what you are earning right now on your investment — not what the prospectus promised.
Annual Dividend / Current Price
Yield-to-Call
Your total annualized return if the issuer calls the shares at the first available date. Includes dividends plus any capital gain or loss from the difference between your purchase price and the call price. This is the most important metric for callable preferreds trading above par.
(Dividends + Call Price - Buy Price) / Years to Call
Credit Rating
Moody's, S&P, and Fitch rate preferred stocks based on the issuer's ability to pay dividends. Investment-grade (BBB- or higher) is safer but lower yield. Below-investment-grade (BB+ or lower) yields more but carries real default risk. Preferred ratings are typically 1-3 notches below the issuer's senior debt.
IG: BBB- or higher | Junk: BB+ or lower
Call Date
The earliest date the issuer can redeem your shares at par. If you bought above par and the call date is next month, you are about to lose money. If you bought below par and the call date is five years away, you collect fat dividends while waiting for a potential capital gain at call.
Check prospectus or QuantumOnline.com
Personal Perspective
Why I Own 26 Series of GSE Preferred Stock
Most people buying preferred stock want 6% income and a quiet portfolio. I want a mispriced option on justice. Those are very different things.
My concentrated position in Fannie Mae and Freddie Mac junior preferred shares is the purest form of deep-value preferred stock investing. These are cumulative preferreds with a $25 par value, issued by two companies that back 70% of American mortgages. In 2012, the government's Net Worth Sweep diverted all their profits to the Treasury, suspending preferred dividends indefinitely.
The cumulative structure means every missed dividend is still owed. The par value defines the upside. And the path to recapitalization — which would restore these shares to full value — has never been closer.
You can read my full trading analysis covering 2,068 transactions, or my worst trades page where I document every painful mistake. Transparency is the point.
I am not saying you should do what I did. I have a concentrated, high-conviction position that most financial advisors would consider reckless. But the preferred stock structure — cumulative dividends, priority over common, par value as a ceiling and floor — is what makes the thesis work. Understanding that structure is the first step to making your own decisions.
Risks You Must Understand
Preferred stocks are not risk-free. I have lost real money on every single one of these risks. Here they are so you do not have to learn them the expensive way.
Interest Rate Risk
Preferred stocks are long-duration fixed-income instruments. When rates rise, preferred prices fall — sometimes 15-20% on a 2% rate move. This is the number one risk and it catches most beginners off guard.
Credit / Default Risk
If the issuer goes bankrupt, preferred shareholders are behind bondholders. In practice, preferred holders often recover pennies on the dollar. Always check the credit rating before buying.
Liquidity Risk
Many preferreds trade thinly — a few thousand shares per day. Wide bid-ask spreads can eat your yield for breakfast. If you cannot exit cleanly, the advertised yield is a fantasy.
Call Risk
Issuers call preferreds at par when rates drop. If you bought above par, you lose money. Your highest-yielding holdings get called first — it is the investing equivalent of your best employees quitting.
Dividend Suspension
Companies can suspend preferred dividends, especially during distress. Non-cumulative preferreds lose those payments forever. Even cumulative preferreds can see dividends frozen for years — ask Fannie Mae shareholders.
Inflation Risk
Fixed-rate preferreds pay the same nominal amount forever. A 6% yield at 2% inflation is great. At 5% inflation, your real return barely beats cash. Purchasing power erodes quietly.
5 Mistakes Beginners Make Buying Preferred Stock
I have either made these myself or watched friends make them. All are avoidable.
1. Using market orders on thinly traded preferreds
What happens: You fill at the ask instead of mid-market and immediately lose $0.50-$1.00 per share. On a 1,000-share order, that is $500-$1,000 evaporated before you earn a single dividend.
The fix: Always use limit orders. Set your price between bid and ask. Wait.
2. Buying above par without checking the call date
What happens: The issuer calls the shares at $25 and you paid $26.50. Congratulations, you turned a 6% yield into a capital loss. Your dividends earned less than you lost on principal.
The fix: Calculate yield-to-call, not just current yield. If YTC is negative, walk away.
3. Chasing the highest yield without checking the credit rating
What happens: That 12% yield exists because the market is pricing in a dividend cut or default. You collect two quarters of outsized dividends and then the company suspends payments. Net result: large loss.
The fix: Check the credit rating first. If it is below BB, you need to know why.
4. Ignoring the cumulative vs. non-cumulative distinction
What happens: The company suspends dividends for two years. With cumulative, you are owed two years of back payments. With non-cumulative, that money is gone forever and you have nothing to show for it.
The fix: Strongly prefer cumulative preferreds. The protection is real.
5. Concentrating everything in one issuer
What happens: If that one issuer runs into trouble, your entire preferred income stream goes dark simultaneously. Diversification is boring but it keeps you solvent.
The fix: Spread across issuers and industries. Unless you are me, and your thesis requires concentration. I do not recommend my approach for most people.
Recommended Reading
Books and resources that helped me understand preferred stock investing at a deeper level.
The Intelligent Investor
Benjamin Graham
The foundation of value investing. Graham's chapters on security analysis and margin of safety apply directly to preferred stock evaluation.
Security Analysis
Benjamin Graham & David Dodd
The original bible of fundamental analysis. Entire chapters devoted to preferred stock analysis that remain relevant nearly a century later.
Common Stocks and Uncommon Profits
Philip Fisher
Fisher's framework for understanding management quality and competitive moats applies when evaluating the companies behind preferred shares.
QuantumOnline.com
Free Resource
The most comprehensive free database of preferred stock details: call dates, dividend rates, cumulative/non-cumulative status, and CUSIP numbers. I use it before every purchase.
Frequently Asked Questions
Where can I buy preferred stock?
You can buy preferred stock through any major brokerage: Charles Schwab, Fidelity, Interactive Brokers, E*TRADE, or TD Ameritrade. Most listed preferred stocks trade on the NYSE or Nasdaq with $0 commissions. OTC preferred stocks (like many GSE preferreds) may require a brokerage that supports OTC trading — Schwab and Interactive Brokers are the best for this.
What is the minimum amount needed to buy preferred stock?
Most preferred stocks trade around $20-$27 per share (near their $25 par value), so you can start with as little as one share. There is no minimum investment required beyond the share price plus any brokerage commission. That said, buying fewer than 100 shares may result in wider bid-ask spreads on thinly traded issues.
What is the difference between preferred stock and bonds?
Preferred stocks and bonds both pay fixed income, but there are key differences. Bonds have a maturity date when principal is returned; most preferreds are perpetual. Bonds are higher in the capital structure (paid first in bankruptcy). Preferred dividends may qualify for lower tax rates than bond interest. Preferred stocks trade on exchanges like stocks; bonds typically trade OTC in $1,000 minimums.
Are preferred stock dividends taxed differently?
Many preferred stock dividends qualify for the lower qualified dividend tax rate (0%, 15%, or 20% depending on your bracket) rather than ordinary income rates that apply to bond interest. However, preferred dividends from REITs and certain financial institutions may be taxed as ordinary income. This tax advantage makes preferreds especially attractive in taxable accounts.
How do I find preferred stock ticker symbols?
Preferred stock tickers vary by brokerage. Schwab uses formats like FNMAS, while Fidelity might show FNMA/S or FNMA-S. Search by company name + 'preferred' in your brokerage, or use the CUSIP number for exact matching. QuantumOnline.com and Preferred Stock Channel maintain comprehensive lists of preferred stocks with their correct ticker formats across different brokerages.
Should I buy preferred stock in a taxable or retirement account?
It depends on the tax treatment of the dividends. Qualified preferred dividends get favorable tax rates in taxable accounts, so tax-efficient preferreds work well there. Non-qualified preferreds (REITs, certain banks) are better in tax-deferred accounts like IRAs where the tax treatment doesn't matter. Glen holds his GSE preferreds in taxable accounts because the expected gains are primarily capital appreciation, which gets favorable long-term capital gains treatment.
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Read moreDisclaimer: This guide is for educational purposes only and does not constitute financial or investment advice. Glen Bradford holds significant positions in Fannie Mae and Freddie Mac preferred securities and is therefore biased. Preferred stock investing involves risks including loss of principal and suspension of dividend payments. Past performance does not guarantee future results. Always do your own research and consult a qualified financial advisor before making investment decisions. Some content was generated or edited with AI assistance.