What is adjustable rate preferred stock?

Adjustable rate preferred stock is characterized by dividends that fluctuate based on market interest rates. This means that rather than receiving a fixed dividend payout like traditional preferred or common stock, holders of adjustable rate preferred stock receive dividends that can change at specified intervals, often in line with a benchmark interest rate such as LIBOR. This feature allows investors to benefit from potentially higher returns in a rising interest rate environment, making it distinct from fixed dividend stocks, where the dividend remains constant regardless of market conditions.

The nature of adjustable rate preferred stock makes it an attractive option during times of changing interest rates, as it provides the opportunity for dividend income adjustments based on current economic conditions rather than being locked into a set rate. This adaptability is what sets adjustable rate preferred stock apart from more traditional types of stock where the dividend payments do not vary.