How to Calculate the Expected Rate of Return for Preferred Stock

Determine the dividend on the preferred stock. Preferred stock generally pays a fixed dividend, so you will know how much the stock is going to pay the stock owner each year. For example, assume the dividend of the preferred stock is $12 per share annually. If the dividend is paid quarterly, you will need to multiply it by 4 to get the annual dividend.
Determine the selling price of the preferred stock. Businesses will have to deal with flotation costs in calculating a stock price, but an individual investor can simply look at the price that the stock is being offered for. For example, assume preferred stock in company ABC is being offered at $200 a share.
Divide the expected dividend per share by the price per share of the preferred stock. With our example, this would be $12/$200 or .06. Multiply this answer by 100 to get the percentage rate of return on your investment. In our example, .06 x 100 = 6 so the rate of return for the preferred stock is 6 percent per year.

How to Calculate Preferred Stock

Obtain the original price at which the preferred stock was issued. This is called the par value and can be found in the stock's prospectus. The prospectus is located on the company website; if not, you can ask your broker to provide the information.
Obtain the preferred dividend. The dividend can be found in the prospectus or provided by your stock broker. The prospectus may present the preferred dividend as a percentage rate of the par value; this is called a dividend rate. If so, multiply the rate times the par value. This will equal the preferred dividend.For example, if the prospectus gives a dividend rate of 6 percent and a par value of $25, the preferred dividend would equal $1.50 (.06*25=$1.50).
Use an online calculator to determine the required rate of return. This is the minimum rate that investors need before they invest their money. Sites such as Moneychimp.com, Money-zine.com and Investment Analysis Calculator (see Resources), are easy to use and provide accurate calculations for the required rate of return.
Divide the preferred dividend by the required rate of return. The result is the preferred stock price. This price is the highest amount you should pay per share. If you pay any more than this, you will be overpaying.