There are many rules investors in preferred stocks try to follow and among the most commonly followed is to never buy preferreds that trade above liquidation value. But while this is a wise move in many cases, especially among more risk-averse investors, there are some underappreciated exceptions where it can be reasonable to pay a premium to liquidation value.
Paying a premium
It’s understandable why many investors would be against paying more than liquidation value for preferred stocks given that preferreds can be typically (but not always) called at liquidation value at a future date. This means that when the preferred is called an investor would lose the difference between the purchase price and the liquidation value. This loss woul…
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