The cost of preferred stock is the rate of return a company needs to provide to its preferred shareholders. This is calculated as the annual dividend payment divided by the price of preferred stock. The Cost of Preferred Stock Calculator helps investors and companies evaluate how much they will need to pay in dividends relative to the stock price.
How to Use the Calculator
1. Enter the dividend per share (the amount paid to shareholders for each share).
2. Enter the current price of the preferred stock.
3. Click the 'Calculate Cost of Preferred Stock' button to get the result.
Formula for Cost of Preferred Stock
The formula to calculate the cost of preferred stock is:
Cost of Preferred Stock = (Dividend Per Share / Price of Preferred Stock) × 100
Example
If the dividend per share is $5, and the price of the preferred stock is $100, the cost of preferred stock would be:
Cost of Preferred Stock = (5 / 100) × 100 = 5%
Importance of Calculating the Cost of Preferred Stock
Calculating the cost of preferred stock is crucial for both companies and investors. For companies, it helps in estimating the financial obligations to preferred shareholders. For investors, it gives insight into the returns they can expect from investing in preferred stock.