Most investors know companies can be public or private, and that businesses sell either common or preferred stock, but Fred Hubler points to a lesser-known option: private preferred stock, which a public company can also issue. Unlike common stock or public preferred stock, which are both exposed to daily market fluctuations, private preferred stock carries all the benefits of a preferred stock without any public market exposure.
He explains why an investor might prefer it over the public version: preferred stocks generally pay a better dividend rate than common stock, and because private preferred shares aren’t tied to common shares or market swings, they let investors gain exposure to a company’s revenue without stock market risk. There’s typically a hold period of around 5 years, after which, depending on the security, investors either get their money back or convert it into common shares – a choice that may belong to the company or the investor, so Hubler advises confirming the exit terms before investing.
A less obvious option: this hybrid structure gives investors a way to earn income from a company without taking on public market volatility.
Read Hubler’s full article on Forbes: Why Private Preferred Stocks Are An Investment You Should Consider