investing

Meager stock payout perplexes investor

Don TaylorQuestionDear Dr. Don,
I am going to inherit three preferred stocks of a local power company that my family purchased in 1928. My grandmother receives a check every three months for $3.15 for all three. I do not claim to understand how stocks work, but common sense says that they should be worth a lot more.

I have tried to find out information, but I must be asking the wrong people. Do you think they should be worth much money and do you know who I would need to contact to find that information out?
-- Christopher Quarterly

AnswerDear Christopher,
Preferred stock can be structured different ways, but it pays a dividend based on a stated interest rate and the par (face) value for the preferred stock. I checked, and the local power company to which you refer has a 4.2 percent preferred stock with a $100 par value that pays a quarterly dividend of $1.05.

Of the outstanding preferred issues, this is the only one I found that paid $1.05 per share. The annual dividend is four times that or $4.20, which is a 4.2 percent yield on a $100 par value.

The market value of a preferred stock fluctuates with market interest rates and the company's fortunes. Still, if your grandmother owns three shares, the combined par value of the shares is $300 -- presuming I have the right outstanding issue. Some preferred stocks have a maturity date, like a bond. Others are perpetuities with no stated maturity date. To cash out, you have to redeem the shares.

The power company's shareholder services department should be able to help you to learn more about the shares your grandmother owns.

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