Preferred Stock Yield to Call Calculator
Estimate the yield a callable preferred stock would earn if it is redeemed on the call date you enter. The calculator also shows the premium loss, total cash received, and the highest purchase price that still meets your target yield.
Yield to call5.09%
- Effective annual yield to call
- 5.19%
- Current dividend yield
- 5.77%
- Time until assumed call
- 5 years
- Principal gain or loss at call
- -$100.00
- Total dividends through call
- $750.00
- Total cash received through call
- $3,250.00
- Maximum purchase price for target YTC
- $25.54
- Price cushion versus target
- -$0.46
Modeled call cash flows
| Cash-flow item | Per share | Position total |
|---|---|---|
| All-in purchase cost | $26.00 | $2,600.00 |
| Modeled dividends | $7.50 | $750.00 |
| Call proceeds | $25.00 | $2,500.00 |
| Net cash gain or loss | $6.50 | $650.00 |
Assumes each remaining dividend is paid on schedule and the shares are redeemed on a dividend payment date.
Yield is nominal annual yield before taxes, bid-ask spread, reinvestment return, and market-price changes if the shares are not called.
The modeled call produces a principal loss because the all-in purchase cost is above the call price.
How to use this calculator
- Enter the preferred share price, fixed annual dividend, and dividend frequency.
- Count the remaining regular dividend payments through the assumed call date.
- Enter the call price, purchase cost per share, and number of shares.
- Set a target yield to see the maximum purchase price that would meet it.
How preferred stock yield to call is calculated
Yield to call estimates the return from buying a callable preferred share, receiving each scheduled dividend, and having the share redeemed at the call price on the assumed call date. It is useful when the purchase price is above par because current yield does not include the premium that may be lost if the issuer calls the issue.
Let P be the purchase price per share, F be purchase cost per share, D be the annual dividend per share, m be dividend payments per year, N be the number of remaining dividend payments, and K be the call price. Each dividend payment is C = D / m. The periodic yield i solves:
P + F = sum(C / (1 + i)^t) + K / (1 + i)^N
The sum runs from t = 1 through N. The calculator solves that equation by bisection, then reports nominal annual yield to call as m * i. It also reports effective annual yield to call as (1 + i)^m - 1, which compounds the periodic yield across a full year.
What moves the result most
The purchase premium, time to call, dividend amount, and call price usually drive the result. A preferred share bought for $26 and called at $25 gives up $1 of principal. If the call happens soon, there may not be enough dividends to offset that loss, so the yield to call can be much lower than the current dividend yield and can even be negative.
Trading costs are treated as part of the purchase cost. They lower the solved yield, reduce the current yield, and lower the maximum market price that can meet a target yield. The number of shares does not change the per-share yield, but it scales total dividends, call proceeds, and the dollar gain or loss at redemption.
Target yield purchase price
To reverse the calculation, the calculator discounts the same dividend and call-price cash flows at your target nominal annual yield. The target periodic yield is target / m, and the maximum purchase price is the present value of the modeled dividends and call payment minus the per-share trading cost. A negative price cushion means the entered purchase price is above the price that would meet the target.
What this calculator leaves out
The model assumes every dividend is declared and paid on schedule, settlement occurs just before a regular dividend period, and redemption occurs on the modeled dividend payment date. It does not include accrued dividends, taxes, bid-ask spread, sale proceeds if the issue is not called, reinvestment return, credit risk, market-price changes, floating-rate resets, skipped or deferred dividends, special redemption premiums, or partial calls.
Worked example
Suppose a preferred stock is bought for $26.00, pays $1.50 per year in quarterly dividends, and is assumed to be called for $25.00 after 20 more dividend payments. With no purchase cost, each quarterly dividend is $0.375 and the assumed call is 5 years away.
The calculator solves a periodic yield of about 1.27%, which is a 5.09% nominal annual yield to call and a 5.19% effective annual yield. Current dividend yield is 5.77%, which ignores the $1.00 per-share loss if the issue is called at $25. For 100 shares, modeled dividends total $750, call proceeds are $2,500, total cash received is $3,250, and the principal loss at call is -$100.
At a 5.50% target yield to call, the maximum purchase price is about $25.54. That is $0.46 below the entered $26.00 price, so the price cushion versus target is negative.
Common questions
Why can a preferred stock have a negative yield to call?
A negative yield to call can happen when the all-in purchase price is above the call price and the remaining dividends are not enough to make up the loss. The solved yield is the discount rate that balances the actual cash flows, so it can fall below zero.
What is the difference between current yield and yield to call?
Current yield divides the annual dividend by the purchase price plus purchase cost. Yield to call also includes the timing of each dividend and the gain or loss between the purchase cost and the call price.
Should I use the first call date or an expected later call date?
Use the call date you want to stress-test. The first call date is often the conservative case for a premium preferred, but an issuer may wait or may never redeem the issue.
How do I count dividend payments remaining before the call?
Count the regular dividend payments expected after your purchase through the assumed redemption date. If there are five years to a quarterly call date, enter 20 payments.
What is the difference between nominal and effective annual YTC?
Nominal annual YTC multiplies the solved periodic yield by the number of dividend periods per year. Effective annual YTC compounds that periodic yield, so it is higher when the periodic yield is positive and lower when the periodic yield is negative.
Does a call date mean the issuer will definitely redeem the shares?
No. A call date usually means the issuer has the right to redeem under the prospectus terms. The issuer may leave the preferred outstanding, call only part of an issue, or redeem under special provisions.