Cost of Preferred Stock
Computes the cost of capital of a preferred stock: the fixed annual dividend divided by the stock's market price, as a percentage. Since preferred stock usually pays a constant dividend, it behaves like a perpetuity, and its cost is the yield on that dividend. This figure goes into the WACC calculation as the cost of the preferred-capital slice. Enter the annual dividend and the preferred stock's price.
Result
—
Cost of Preferred Stock
Computes the cost of capital of a preferred stock: the fixed annual dividend divided by the stock's market price, as a percentage. Since preferred stock usually pays a constant dividend, it behaves like a perpetuity, and its cost is the yield on that dividend. This figure goes into the WACC calculation as the cost of the preferred-capital slice. Enter the annual dividend and the preferred stock's price.
What preferred-stock capital costs
For a company, every source of capital has a price. Preferred stock sits midway between debt and common equity: it pays a generally fixed dividend, with no claim to growth, but with priority over common shareholders. Since that dividend is usually constant, computing the cost of this slice of capital is straightforward.
Because it behaves like a perpetuity, the cost of preferred stock is the annual dividend divided by the stock's market price. A preferred paying 5 per year and trading at 50 has a cost of 10%. This number goes into the WACC, the weighted average cost of capital, representing how much the company pays for the money it raised via preferred shares.
Enter the preferred's annual dividend and its market price. The tool returns the cost as a percentage. In a finer analysis, issuance costs are subtracted from the price to get the net cost; here we use the direct version, enough for most WACC estimates.
Related Tools
Cost of Equity (Bond Yield Plus Premium)
Estimates the cost of equity using the bond yield plus risk premium method: it adds to the company's own long-term debt yield a risk premium for the gap between stocks and bonds. It's a quick alternative to the CAPM, useful when you lack a reliable beta: if the company pays 8% on its debt and the typical equity-over-debt premium is 4%, the cost of equity comes to around 12%. Enter the debt yield and the risk premium.
Capital Gains Yield
Computes the capital gains yield of an asset: the percentage price appreciation between the start and end of the period, (P1 − P0)/P0. It's the part of the total return that comes from the price change, not counting dividends — added to the dividend yield, it gives the stock's total return. It serves to separate how much of the gain came from appreciation and how much from income. Enter the starting price and the ending price.
Residual Income
Computes a company's residual income: net income minus a charge for the use of equity capital, equal to the capital times the required cost of capital. The idea is that accounting profit doesn't tell the whole story — value is only created when earnings exceed what shareholders could earn elsewhere at the same risk. A positive residual income signals a return above the cost of capital. Enter the net income, the equity capital and the cost of equity.
Effective Spread (Microstructure)
Computes the effective spread of a trade: twice the distance between the price at which the trade actually executed and the midpoint between the best bid and best ask at that moment. Unlike the quoted spread, which measures the bid-ask difference, the effective spread captures the real cost the investor paid, accounting for where the order actually filled in the book. The result comes in absolute value and as a percentage of the midpoint. Enter the trade price and the midpoint.
Stock Dividend Payout Ratio Calculator
Computes the payout ratio of a listed company from annual dividends paid and net income earned in the same period.
HP-12C Dividend Yield
Computes Dividend Yield of typical Brazilian stock by HP-12C dividends over share price.
The results provided by this tool are for general informational and educational purposes only and do not constitute professional, financial, medical, legal, tax or accounting advice. Always confirm important decisions with a qualified professional and official sources.