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Chapter 15: Technique of Selecting Preferred Stocks for Investment

When a company has both bonds and preferred stock the preferred stock can be safe enough only if the bonds are much safer than necessary. Conversely, if the bonds are only just safe enough, the preferred stock cannot be sound.

The right calculation to assess the preferred stock is the number of times fixed and preferred dividend charges are earned. (Earnings before Interest Changes and before Preferred Dividends)/(Interest Changes + Preferred Dividends)

Chief objection to the noncumulative provision is that it permits the directors to withhold dividends even in good years, when they are amply earned, the money thus saved inuring to the benefit of the common stockholders. Experience shows that noncumulative dividends are seldom paid unless they are necessitated by the desire to declare dividends on the common.
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