Definition
The term callable preferred stock refers to securities containing a feature that allows the issuer to redeem or call in the shares at its option. Callable preferred stock will specify the redemption price as well as a date after which the securities can be redeemed.
It's fairly common for preferred stock to be callable, and since this feature provides a benefit to the issuer, the redemption price will contain a premium to compensate the investor for this risk.
Explanation
Companies have the ability to attach a number of features or restrictions to the preferred stock they issue to the market. For example, preferred stock can be issued as cumulative, participating, convertible, and callable. These features can add to, or subtract from, the value the security provides investors.
Companies will often issue preferred stock with a call feature since it provides them with the ability to flexibly raise capital. For example, they could issue preferred stock to raise capital in the near term, and then call it back in when it's no longer useful or interest rates decline. When redeemed, holders of these securities will need to find an alternate investment.
If an interest rate decline prompts the company to call in the stock, investors will be forced to look for what might be an unattractive alternative to the preferred stock being redeemed. To compensate investors for this risk, the call price of these securities will oftentimes include a premium, stated in terms of the stock's par value.
Finally, unless the preferred stock also carries a convertible feature, the call price would typically establish a ceiling price for these securities.
Related Terms
- The financial accounting term preferred stock refers to a class of equities issued by corporations that contains special preferences, or features, that are not present in common stock. Preferred stock dividends are typically paid before those of common stocks; however, they usually don't have the voting rights common shareholders enjoy.
Moneyzine EditorNovember 6th, 2024 
The term cumulative preferred stock refers to securities containing a feature that requires the payment of passed dividends to preferred shareholders before providing common shareholders with a dividend payment. While it's possible for a company to issue noncumulative preferred stock, these securities would be considered unattractive to investors.Moneyzine EditorNovember 6th, 2024- The term participating preferred stock refers to securities containing a feature that allows shareholders to receive an additional dividend if certain conditions are met. This additional dividend is typically linked to the payment of common stock dividends. When preferred stock contains this feature, the securities can be fully-participating or partially participating.Moneyzine EditorNovember 6th, 2024
The term convertible preferred stock is used to describe one of several classes of preferred stock that can be issued by a company. To add to the marketability of this investment, convertible preferred stock provides the holder with the right to exchange this investment for shares of common stock.Moneyzine EditorNovember 6th, 2024
