Regions Financial Corporation (NYSE:RF) – repurchasing preferred stock
Today, Regions Financial Corp. (NYSE:RF)’s indirect subsidiary, Union Planters Preferred Funding Corp, announced that it has launched a cash tender offer to repurchase 7.75% of its Non-Cumulative Exchangeable Series, B Preferred Stock. Beneficial owners represent around $61.1M in aggregate liquidation-amount, or 61.1% of outstanding shares of the UPPFC Series B Preferred Stock, have said that they have intentions of tendering their stock in this tender offer.
What is preferred stock?
A preferred stock is a security that has characteristics that lie between common stock and a bond. Stockholders who have preferred stock have a larger claim to any company’s earnings and assets. This fact holds true when the going is good and the company has an influx of cash and decides that it will distribute cash to its investors, in the form of dividends. In instances such as these, when the distribution takes place, preferred stockholders have to be paid before the common stockholders are.
When times are bad…
This particular claim is more relevant in times of insolvency. That is when common stockholders are at the fag end of the line when it comes to the company’s assets. What this means is that the company has to liquidate and pay-off all its bondholders and creditors first and the preferred shareholders will be paid before the common stockholders get their amount. Another important point is that dividends of the preferred stocks differ from and exceed the ones that are given for common stock. When a preferred stock is bought, the investor knows when a dividend will be coming in. This is because the payment comes in at regular intervals.
When a fixed-income is what you want
However, this is not always the case with common stock. The Board of directors of a company will decide whether a dividend has to paid-out or not. Due to this characteristic, preferred stock does not generally fluctuate as much as a company’s common stock does. In some cases, it may also be referred to as “fixed-income” security and are generally guaranteed. But preferred stockholders cannot vote on any company proposals. Ironically, individual common shareholders too have almost zero influence on the policies of a company. Right now, Regions Financial Corp. (NYSE:RF) preferred stockholders are profiting.