Class of stock (shares) that pays fixed and regular interest income, instead of a dividend (whose payment and amount depends on factors beyond stockholder's control). Holders of preferred stock have claim over the firm's earnings (and assets in case of liquidation) ahead of (senior to) the claim of holders of common stock (ordinary shares) but behind (junior to) the claims of bondholders and all other creditors. Depending on the terms of the agreement under which preferred stock is issued, the degree of control of its holders over the firm's operations ranges from none to the same as that of the holders of common stock.
Most preferred stock is cumulative; common stock holders cannot receive any dividend until all the unpaid interest owed to preferred stock holders is paid. For the issuing firm, preferred stock is an uneasy compromise between debt and equity, and is seen as capital with a tax advantage because interest is written off as expense against earnings. Also called preference shares.
For more information see Common Stock vs. Preferred Stock, and Stock Classes at InvestorGuide.com.
Use 'preferred stock' in a Sentence
The smart thing to do is to buy preferred stock when it is available, so that if the company earns money or has to liquidate assets, you get payed out before the common stock holders.
In this recipe, begin with your preferred stock which can be beef, chicken or vegetable and will form the basis for the soup.
A corporation can choose to give preferred stock to common stockholders but usually common stock is distributed to regular stockholders instead.
You Also Might Like...
