Dictionary Home »
Invest » preferred stock
preferred stock investment & finance definition
A
class of stock that pays dividends at a set rate. Holders of preferred stock
receive their dividends before common-stock holders if the company reduces or
eliminates its common dividend payment. In the case of a bankruptcy or
liquidation, preferred-stock holders receive the proceeds before common-stock
holders. Preferred stocks do have some draw-backs. If the company’s earnings
rise, the preferred stockholders’ dividend payment remains fixed at the initial
dividend level. Typically preferred stockholders don’t have voting rights.
Dividends can be cumulative, which means that if they are not paid in a particular year then they will be carried forward. However, these are not debts of the com-pany because the directors can defer preferred dividends indefinitely. Non-cumulative dividends are lost if they are not paid in a particular year. Preferred stock dividends can have tax advantages for corporate investors, which is one reason they are the primary purchasers of preferred stock.
See preferred stock in Wall Street Words
Learn more about preferred stock
»
preferred stock definition
» preferred stock business definition
Related Articles