[mickeywmouse]

How do I allocate dividends to preferred stock when the dividend is 6%?

[morgaine300]

Take 6% of the total value of the preferred stock (which should be par x # of shares). That's the total amount the preferred stockholders are required to get each year.

So if the total of the P/S is $100,000 then 6% is $6000. So the $6000 would be the amount in total they are required to get each year, if it exists. If the company is only paying $5000 in dividends then they only get $5000. (i.e. it's up to $6000 if it exists) If the company is paying $10,000, then they are limited to the $6000. That would leave $4000 to go to the common shareholders.

If it is cumulative stock, then that changes it a bit. If it's not cumulative, ignore this part cause it'll just seem confusing. But if it's cumulative, they have to "make up" for anything that wasn't paid in the past. So for my example where they were only paying $5000 and the requirement is $6000, then that $1000 they didn't get does what we call going into arrears. That's kind of the "make up" area. That has to be paid as soon as it is possible. So in the next year if they're paying $10,000, the preferred can now get their entire $6000 required amount, and the $1000 from arrears, and now there's $3000 left to go to common stockholders.