Fannie Mae Preferred S (FNMAS)

[Joe Stocks]

>>I do not think the government -very general thinking- is as sanguine against preferred holders as it appears to be against common equity. Preferred holders were not and are not owners. Preferred shares are not equity<<

Well, the government threw them all into the same boat on Sept 8th, 2008.

On a balance sheet you have assets, liabilities, and equity. The preferreds fall under equity. Granted, a hybrid form of equity, but equity none the less. Preferreds are basically preferred equity shares. Therefore the liquidation preference in equity liquidation.

Wikipedia;
"Under a financial concept of capital, such as invested money or invested purchasing power, capital is synonymous with the net assets or equity of the entity"

To your point earlier you said dividends come from profits. I am saying that profits add to capital. You can have a company that does not earn a profit, but as long as they have excess capital from prior earnings they could still pay a regular dividend.

Excess capital distributions can take several forms. Stock buybacks, dividends, special dividends. The example you referenced sounds like a return of invested capital often associated for closed end funds, and in your case a sale of an asset.

If you don't think dividends come from excess capital, the only other option would be for them to come from a capital deficit. All I am saying is a company like Fannie and Freddie will need to fulfill their regulatory capital needs (in other words, have excess capital that exceeds their regulatory requirements) before they can consider declaring a dividend.

JMO