Procter & Gamble has two main retirement programs for its employees: the P&G PST & ESOP Plan (PST Plan) and the P&G 401(k) Savings Plan. When it comes to the type of P&G stock contributions made inside your PST Plan, there are some important nuances that may benefit you as you look to achieve your financial goals.
Common vs. Types of Preferred Stock
One of the biggest things to understand is the difference between a common stock, a preferred stock, and the PST Plan preferred stock – specifically P&G’s Convertible Class “A” Preferred Stock Series “A” (here on pages 56-57). Preferred stock, as generally used by US corporations (in this case not P&G’s Convertible Class “A” Preferred Stock Series “A”), is publicly traded capital stock issued by a corporation. Although normally, preferred stock is listed and traded on stock exchanges, it is priced or valued more similarly to an unsecured debt instrument or bond. A preferred stock issue typically has no voting rights and pays a fixed dividend typically stated as a percentage of par. In the event of a bankruptcy, preferred stock owners have a claim on the firm’s assets and cash flows ahead of common stock owners but behind unsecured bonds in liquidation order. Because of its bond like characteristics, typically, preferred stock is evaluated for its fixed income distributions and its ability to pay future obligations. Credit rating agencies such as Moody’s, Fitch and Standard & Poor’s may evaluate a preferred security and assign a credit rating.
P&G’s Convertible Class “A” Preferred Stock Series “A”
However, inside the P&G PST & ESOP Plan, the Convertible Class “A” Preferred Stock Series “A” stock is tied to P&G’s employee stock ownership plan (ESOP). Along with P&G’s common stock, Procter & Gamble’s Convertible Class “A” Preferred Stock Series “A” is used to fund a portion of the PST Plan contributions annually. Unlike many other corporate “preferred stock” issues, shares of P&G’s Preferred Stock Series “A” do have voting privileges, and each share is convertible into one share of P&G’s common stock (here on page 2). As of the firm’s 2019 annual report, the Convertible Class “A” Preferred Stock Series “A” pays a dividend equal to the dividend paid on the firm’s common stock and it typically carries a cost basis of $6.82 per share (here on pages 56-57).
More Nuance Requires Expertise
On the other hand, PST Plan contributions made with P&G common stock carry a cost basis based on the publicly traded price of the common stock on the day each contribution was made. This difference in cost basis between the common stock and the preferred stock inside your P&G PST Plan is meaningful. Upon your retirement, knowing the nuances of this difference and what to do about it as you decide how to take your PST Plan assets can potentially be beneficial to you.
Pulling It All Together
This is just one of the nuances you’ll want to know to make good financial planning decisions as a current or former P&G employee. Having this knowledge and understanding what to do about it may have a significant impact on your goals and investment strategy. Understanding and successfully managing your own retirement benefits, restricted stock units, company stock options, other investments and goal planning can sound complex or even overwhelming at times. We get it. We’ve helped your colleagues facing similar complexity and similar concerns (here). Schmitt Wealth Advisers is at your service and prepared to help you achieve the retirement lifestyle you desire. That’s our vision.
Learn more about your options and making the right decisions for your future here.
This material was prepared by a third party for use by Schmitt Wealth Advisers, LLC., and is for informational purposes only. It is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy or investment product. Data presented herein has been obtained from sources believed to be reliable. Schmitt Wealth Advisers, LLC, however, cannot guarantee the accuracy or completeness of such information, and certain information may have been condensed or summarized from its original source. Schmitt Wealth Advisers, LLC, nor its investment adviser representatives gives tax or legal advice. Company benefits change periodically. Always consult with your employer for the most current benefits prior to making any decisions.