Preferred stock

Preferred stock, a.k.a. preferred share, preference stock, preference share.

Definition: A class of ownership in a corporation that has a higher claim on the assets and earnings than common stock. Preferred stock generally has a dividend that must be paid out before dividends to common stockholders and the shares usually do not have voting rights.

extracted from: http://www.investopedia.com/terms/p/preferredstock.asp#ixzz1X5HuqypM

In general, preferred shares are a form of corporate debt that has some qualities of common shares as well as that of bonds. The main characteristic of preferred shares are that they pay a fixed return to the holder at regular specified intervals, usually in the form of a dividend. The dividend payment typically does not fluctuate or change over time as it is determined at the time of issue, unlike common shares. However, there are rate resetting preferred shares as well (where the payment is calculated based on a predetermined formula).  The preferred share represents partial ownership in the company just like common shares do. Often, they are redeemable by the corporation after a specified date.

Here's how you read a preferred stock listed on the SGX:

eg. DBS Bk 4.7% NCPS 100

• DBS Bk - The company that offers the stock, in this case, DBS Bank.
• 4.7% - The dividend payout as a percentage of the initial offer price PER ANNUM, in this case, 4.7% of $100 = $4.7 p.a.
• NCPS - Stock type. NCPS means non-cunmulative preferred stock. If they did not declare a dividend last year, you cannot receive what they owe you last year.
• 100 - Quantity per lot (no number = default lot size of 1,000 shares), in this case, 1 lot = 100 shares.

Preferred stock is the preferred choice for growing money compared to fixed deposits as they tend to have a higher return of investment. Why?

The following are the links to the deposit rates of the various banks:

DBS - http://www.dbs.com/ratesonline/Pages/fdsgd.aspx

OCBC - http://www.ocbc.com.sg/personal-banking/tools%20and%20info/Toi_Rates_Dep_Listing.shtm

UOB - http://www.uob.com.sg/personal/deposits/fixed/singapore_fixed_deposit.html

Citibank - https://www.citibank.com.sg/gcb/static/deposit_boardrates.htm?eOfferCode=SGTDULW

Among these banks, OCBC and UOB both give the highest return of 0.7% p.a. for a deposit of >$500,000, for at least 2 years. UOB offers a promotional 0.938% p.a. for a deposit of >$40,000 for at least 3 years at time of posting. Hence the returns of fixed deposit from OCBC and UOB are 14.97% and 27.80% for 20 years respectively. Lets compare these to their respective prefered stock...

OCBC Bk 5.1%NCPS 100

Last traded price: $106.00 (5 Sep 2011)

Dividend yield: $5.1/share p.a.

Real Return: $5.1/$106 = 4.811% p.a

Minimum "deposit": $106 x 100 shares = $10,600
Total Yield in 20 Years: 4.811% x 20 = 96.22%

UOB 5.05%NCPS 100

Last traded price: $105.00 (5 Sep 2011)

Dividend yield: $5.05/share p.a.

Real Return: $5.05/$105 = 4.810% p.a

Minimum "deposit": $105 x 100 shares = $10,500

Total Yield in 20 Years: 4.810% x 20 = 96.20%

As you can see, preferred stock far outpace fixed deposit in terms of returns.
Of course the risk is that the banks may choose not to pay dividends for the year. Historically though, all 3 banks have been declaring regular payouts even during the great recession of 2008-2009.