Preferred Stock Payments
Cash Outflows for Redemption or Repurchase of Preferred Shares
Preferred Stock Payments represent cash spent by the company to redeem, repurchase, or retire its outstanding preferred stock. These outflows appear in the financing section of the cash flow statement and reflect a reduction in preferred equity capital, often done to simplify the capital structure, reduce dividend obligations, or refinance at better terms.
What It Covers
Preferred Stock Payments are cash outflows when the company buys back or redeems its preferred shares.
- Mandatory redemption of redeemable preferred
- Open-market repurchases
- Call option exercise (callable preferred)
- Tender offers or buybacks
- Retirement of preferred equity
Does NOT include regular preferred dividends (those are separate).
Often paired with Preferred Stock Issuance to show net change.
A Simple Example
Company has $100M outstanding preferred stock with call option.
- Interest rates fall → cheaper to refinance
- Company calls (redeems) $60M at 101% of par → pays $60.6M cash
- Cash flow statement: -$60.6M Preferred Stock Payments
- Issues $50M new preferred → +$50M Preferred Stock Issuance
- Net Preferred Stock Issuance: -$10.6M
Reduced preferred obligations and dividend burden going forward.
Common Reasons for Payments
- Rates drop → redeem high-coupon preferred
- Simplify capital structure (fewer classes)
- Reduce fixed dividend obligations
- Replace with lower-cost preferred or debt
- Mandatory redemption date arrives
- Improve common equity ratios
Accounting and Presentation
- Cash outflow in financing activities
- Often labeled 'Preferred Stock Payments' or 'Redemption of Preferred Stock'
- Premium paid over par → usually to financing (not expense)
- Balance sheet: Reduces Preferred Stock account
Non-cash conversions (preferred to common) do not create cash flow.
Impact on Capital Structure
- Lowers preferred dividend commitment
- May improve common shareholder flexibility
- Reduces hybrid/equity capital
- Potential credit rating benefit (less fixed obligation)
- Cash drain in period of payment
What to Watch For
- Size relative to cash flow (liquidity impact)
- Frequency (ongoing restructuring?)
- Premium paid (cost of early redemption)
- Net with issuances (true capital change)
- Dividend savings vs. refinancing cost
Large payments can strain short-term cash without clear long-term benefit.
Key Takeaways
Preferred Stock Payments are cash outflows to redeem or repurchase preferred shares.
Financing activity—reduces preferred equity.
Common for refinancing, simplification, or mandatory redemption.
Separate from regular preferred dividends.
Often offset by new issuances (check net figure).
Monitor cost (premiums) and impact on dividend obligations.
Preferred Stock Payments
Cash Outflows for Redemption or Repurchase of Preferred Shares
Preferred Stock Payments represent cash spent by the company to redeem, repurchase, or retire its outstanding preferred stock. These outflows appear in the financing section of the cash flow statement and reflect a reduction in preferred equity capital, often done to simplify the capital structure, reduce dividend obligations, or refinance at better terms.
Table of Contents
What It Covers
Preferred Stock Payments are cash outflows when the company buys back or redeems its preferred shares.
- Mandatory redemption of redeemable preferred
- Open-market repurchases
- Call option exercise (callable preferred)
- Tender offers or buybacks
- Retirement of preferred equity
Does NOT include regular preferred dividends (those are separate).
Often paired with Preferred Stock Issuance to show net change.
A Simple Example
Company has $100M outstanding preferred stock with call option.
- Interest rates fall → cheaper to refinance
- Company calls (redeems) $60M at 101% of par → pays $60.6M cash
- Cash flow statement: -$60.6M Preferred Stock Payments
- Issues $50M new preferred → +$50M Preferred Stock Issuance
- Net Preferred Stock Issuance: -$10.6M
Reduced preferred obligations and dividend burden going forward.
Common Reasons for Payments
- Rates drop → redeem high-coupon preferred
- Simplify capital structure (fewer classes)
- Reduce fixed dividend obligations
- Replace with lower-cost preferred or debt
- Mandatory redemption date arrives
- Improve common equity ratios
Accounting and Presentation
- Cash outflow in financing activities
- Often labeled 'Preferred Stock Payments' or 'Redemption of Preferred Stock'
- Premium paid over par → usually to financing (not expense)
- Balance sheet: Reduces Preferred Stock account
Non-cash conversions (preferred to common) do not create cash flow.
Impact on Capital Structure
- Lowers preferred dividend commitment
- May improve common shareholder flexibility
- Reduces hybrid/equity capital
- Potential credit rating benefit (less fixed obligation)
- Cash drain in period of payment
What to Watch For
- Size relative to cash flow (liquidity impact)
- Frequency (ongoing restructuring?)
- Premium paid (cost of early redemption)
- Net with issuances (true capital change)
- Dividend savings vs. refinancing cost
Large payments can strain short-term cash without clear long-term benefit.
Key Takeaways
Preferred Stock Payments are cash outflows to redeem or repurchase preferred shares.
Financing activity—reduces preferred equity.
Common for refinancing, simplification, or mandatory redemption.
Separate from regular preferred dividends.
Often offset by new issuances (check net figure).
Monitor cost (premiums) and impact on dividend obligations.
Related Terms
Apply This Knowledge
Ready to put Preferred Stock Payments into practice? Use our tools to analyze your portfolio and explore market opportunities.
This content is also available on our main website for public access.