Monthly Income Preferred Securities (MIPS)
In addition, there is a robust liquid secondary market for these securities, because these hybrid preferred securities offer higher yields than corporate bonds and conventional preferred stock. MIPS are hybrid securities, combining features of preferred stock and corporate bonds. Prior to the creation of MIPS, individual investors with relatively small amounts to invest did not have this opportunity because corporate debt is typically sold in lots of $5,000 or more, necessitating a minimum purchase of five $1,000 bonds. The exchanges allow the issuer to redeem their existing preferred stock and replace it with tax-deductible MIPS.
Definition of Monthly Income Preferred Securities (MIPS)
Shares that are an interest in a limited partnership existing solely for the purpose of issuing preferred securities and lending the proceeds of the sales to its parent company. MIPS usually have a $25 par value, NYSE listing, and cumulative monthly distributions.
Understanding Monthly Income Preferred Securities (MIPS)
MIPS are hybrid securities, combining features of preferred stock and corporate bonds. Hybrids can pay a higher rate of return than preferred stock because dividends are paid with pretax dollars, generating a sizable tax break for corporations. But one of the biggest draws for corporations that implement MIPS programs is that the tax-related savings they enjoy are obtained without raising the corporation’s debt ratio. As a result, major companies have undertaken preferred stock exchange offers with increasing frequency. The exchanges allow the issuer to redeem their existing preferred stock and replace it with tax-deductible MIPS.
From an investor’s perspective, MIPS offer a host of advantages. Chief among them, the securities tend to offer higher yields than those associated with money market funds, certificates of deposit and other alternative investments. MIPS is generally viewed as a convenient method for which investors can invest in instruments that are similar to long-term corporate debt. Prior to the creation of MIPS, individual investors with relatively small amounts to invest did not have this opportunity because corporate debt is typically sold in lots of $5,000 or more, necessitating a minimum purchase of five $1,000 bonds. Contrarily, MIPS' typical $25 per unit cost makes the fixed-income market much more readily accessible to individual investors. In addition, there is a robust liquid secondary market for these securities, because these hybrid preferred securities offer higher yields than corporate bonds and conventional preferred stock.
MIPS must adhere to a strict set of procedural guidelines. A few of the essential procedural rules are as follows:
Related terms:
Adjustable-Rate Preferred Stock (ARPS)
Adjustable-Rate Preferred Stock (ARPS) is a preferred stock whose dividends vary with benchmarks like T-bill, creating more stable prices than dividends connected to fixed-rate. read more
Dividend
A dividend is the distribution of some of a company's earnings to a class of its shareholders, as determined by the company's board of directors. read more
Dividend Enhanced Convertible Stock (DECS)
Dividend Enhanced Convertible Stock (DECS) is a preferred stock that provides holders with premium dividends. read more
Monthly Income Plan (MIP)
A monthly income plan (MIP) is a debt-driven mutual fund that invests a small portion of its assets into equities. read more
New York Stock Exchange (NYSE)
The New York Stock Exchange, located in New York City, is the world's largest equities-based exchange in terms of total market capitalization. read more
Preferred Stock
Preferred stock refers to a class of ownership that has a higher claim on assets and earnings than common stock has. read more
Quarterly Income Preferred Securities (QUIPS)
Quarterly Income Preferred Securities (QUIPS) are bonds that trade like stocks, letting companies raise funds and investors reap dividends. read more
Security : How Securities Trading Works
A security is a fungible, negotiable financial instrument that represents some type of financial value, usually in the form of a stock, bond, or option. read more