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Finance Dictionary and Glossary of Investment Terms
Preferred stock
Definition 1.
A security that shows ownership in a corporation and gives the holder a claim, prior to the claim of common stockholders, on earnings and also generally on assets in the event of liquidation. Most preferred stock pays a fixed dividend that is paid prior to the common stock dividend, stated in a dollar amount or as a percentage of par value. This stock does not usually carry voting rights. Preferred stock has characteristics of both common stock and debt.
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Definition 2.
Capital stock which provides a specific dividend that is paid before any dividends are paid to common stock holders, and which takes precedence over common stock in the event of a liquidation. Like common stock, preferred stocks represent partial ownership in a company, although preferred stock shareholders do not enjoy any of the voting rights of common stockholders. Also unlike common stock, a preferred stock pays a fixed dividend that does not fluctuate, although the company does not have to pay this dividend if it lacks the financial ability to do so. The main benefit to owning preferred stock is that the investor has a greater claim on the company’s assets than common stockholders. Preferred shareholders always receive their dividends first and, in the event the company goes bankrupt, preferred shareholders are paid off before common stockholders. In general, there are four different types of preferred stock: cumulative preferred, non-cumulative, participating, and convertible. also called preference shares.
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Definition 3.
Preferred stock is stock that acts a lot like a bond but confers an ownership stake in the company. Preferred shares typically pay a fixed dividend and give their holder a claim to earnings and assets prior to that bestowed by common stock. In general, the higher the preferred yield, the greater the risk. Also, preferred yields can be cut, whereas a company can''t simply decide not to pay its bondholders (unless it relishes the notion of default). Preferred stock often comes with a conversion clause permitting it to be traded in for common shares; in such instances, look at the conversion premium, or gap between the conversion price and the market price of the common. Too large a gap means limited appreciation for the preferred, and little chance of conversion in the near future. Preferred stock tends to be bought by institutions rather than individuals. The latter can conveniently invest in such issues through a mutual fund specializing in convertible securities.
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Definition 4.
A security that usually pays a fixed dividend and that gives the holder a claim on corporate earnings and assets that is superior to that of holders of common stock. (See common stock)
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Definition 5.
A class of ownership in a corporation with a stated dividend that must be paid before dividends to common stock holders. Preferred stock does not usually have voting rights.
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