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In your view, why yields in nonconvertible preferred stock are generally lower than yields on corporate...

In your view, why yields in nonconvertible preferred stock are generally lower than yields on corporate bonds? Which investors are the primary holders of preferred stocks? Why?  

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Answer #1

ANSWER DOWN BELOW. FEEL FREE TO ASK ANY DOUBTS. THUMBS UP PLEASE.

The main reason is due to "Tax"

Preference yield has a lower yield. corporate bonds has higher Yield.

As the Dividend received in the hands of corporate investors are exempted from tax. They are willing to pay more for it. If they are paying more for it, then the prices of goes preference stock up.

Hence effective yield decreases.

Corporate Investors get 70% tax benefit from the Dividends, unlike individual Investors. That's why Investors are primary holders of Preference stocks.

Whereas, If the company pays more Corporate yield then it gets the benefit of tax Sheild. Hence companies generally like to pay more to Corporate Bonds to get the benefit of the Tax shield.

Hence corporate bonds have higher Yield.

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