Saturated Meat Corporation preferred stock is currently selling for $22 per share. The preferred dividend is $2.50 per share. If Jennifer requires a return of 10% on the preferred stock, should she invest in this stock?

Question

Saturated Meat Corporation preferred stock is currently selling for $22 per share.  The preferred dividend is $2.50 per share.  If Jennifer requires a return of 10% on the preferred stock, should she invest in this stock?

Ms. Sue · Answer

10% of 22 = 2.2 What do you think?

Joe · Answer

I think not but why?

Ms. Sue · Answer

She should buy this stock. The yearly dividend is $2.50. That is more than 10% of the investment.