Taxable Preferred Securites

A type of pferred equity security that does not qualify for the pidends-received deduction for corporations of typical pferred securities, defined in Section 243 of the Internal Revenue Service (IRS) Code. Taxable pferred securities are usually junior level liabilities, and the coupons tied to them can either be fixed or variable, and for indefinite or specific maturities.

As with regular pferred stocks, these securities trade like bonds with regular denominations of $25 par and $1,000 par. The pidends paid are treated as regular income instead of pidends to the investor, but receive favorable tax treatment for the issuing company.

Also known as "hybrid pferred securities".

Taobiz explains Taxable Preferred Securites

The tax treatment of these securities is more favorable for corporations and less for investors, causing them to typically trade at higher yield spads than regular pferreds. This type of security started to take off in the mid-1990s. Their proliferation has led to several funds and exchange-traded funds that invest solely in taxable pferreds.

The $25 par securities are usually bought and sold by retail investors, whereas institutional investors primarily deal in the $1,000 par securities.