[Verse 1]
When companies need funding but don't want to dilute
Common shareholder control, here's their substitute
Preferred stock offers capital with a twist
Fixed dividends promised, they can't be dismissed
Higher than bonds but lower than equity cost
Calculate it right or profits might be lost
[Chorus]
Dividend per share divided by the price
That's the cost of preferred, simple and precise
D-P over P-zero, remember this equation
Cost of preferred stock for your calculation
No tax shield benefit like debt can provide
Higher cost of capital you cannot hide
[Verse 2]
Unlike common stock with uncertain returns
Preferred dividends are fixed, that's what the firm learns
Priority in payments when profits are made
Before common holders get anything paid
But if bankruptcy comes, they're still behind debt
Junior to bondholders, don't you forget
[Chorus]
Dividend per share divided by the price
That's the cost of preferred, simple and precise
D-P over P-zero, remember this equation
Cost of preferred stock for your calculation
No tax shield benefit like debt can provide
Higher cost of capital you cannot hide
[Bridge]
In the capital structure it sits in between
Debt and equity, filling the scene
WACC calculations need this component right
Weighted average cost in the financial light
Flotation costs increase the real expense
Market price adjusted makes better sense
[Chorus]
Dividend per share divided by the price
That's the cost of preferred, simple and precise
D-P over P-zero, remember this equation
Cost of preferred stock for your calculation
No tax shield benefit like debt can provide
Higher cost of capital you cannot hide
[Outro]
From the CFA body of knowledge we learn
How preferred stock costs help returns to earn
Fixed payments promised with hybrid appeal
Cost of preferred stock, now you know the deal