Adjustable-Rate Preferred Stock - ARPS

Adjustable-Rate Preferred Stock - ARPS

A type of preferred stock where the dividends issued will vary with a benchmark, most often a T-bill rate. The value of the dividend from the preferred share is set by a predetermined formula to move with rates, and because of this flexibility preferred prices are often more stable then fixed-rate preferred stocks.

Notes:

The preferred category of stocks are more secure as they will be one of the first of the equity holders to receive dividend payments in the event of the company's liquidation. There is often a limit to the amount the rate can change on the dividend, adding further security to the issue.

See also: Callable Preferred Stock, Convertible Preferred Stock, Dividend, Participating Preferred Stock, Preferred Stock