Preferred Stock
Preferred stock is a hybrid security with features of both stocks and bonds, offering fixed dividends and priority over common stock in liquidation.
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Exam Tip
Cumulative preferred must receive ALL missed dividends before common gets any.
What is Preferred Stock?
Preferred stock is a class of ownership that has a higher claim on assets and earnings than common stock. Preferred shareholders receive dividends before common shareholders and have priority in bankruptcy.
Key Characteristics
| Feature | Description |
|---|---|
| Dividends | Fixed rate, paid before common stock |
| Voting Rights | Usually none |
| Liquidation Priority | Paid before common, after bonds |
| Price Behavior | More stable, similar to bonds |
Types of Preferred Stock
- Cumulative - Missed dividends accumulate and must be paid before common dividends
- Non-cumulative - Missed dividends are lost forever
- Convertible - Can be exchanged for common stock
- Callable - Issuer can buy back at a set price
- Participating - May receive extra dividends beyond the fixed rate
Study This Term In
Related Terms
Common Stock
Common stock is a security representing ownership in a corporation, giving shareholders voting rights and potential dividends.
Dividend
A dividend is a distribution of a portion of a company's earnings to shareholders, typically paid quarterly in cash or additional shares.
Bond
A bond is a fixed-income debt security where the issuer owes the holder a debt and pays interest (coupon) plus principal at maturity.
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