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Preferred Stock

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Dictionary Says

Definition of 'Preferred Stock'

A class of ownership in a corporation that has a higher claim on the assets and earnings than common stock. Preferred stock generally has a dividend that must be paid out before dividends to common stockholders and the shares usually do not have voting rights.

The precise details as to the structure of preferred stock is specific to each corporation. However, the best way to think of preferred stock is as a financial instrument that has characteristics of both debt (fixed dividends) and equity (potential appreciation). Also known as "preferred shares".

Investopedia Says

Investopedia explains 'Preferred Stock'

There are certainly pros and cons when looking at preferred shares. Preferred shareholders have priority over common stockholders on earnings and assets in the event of liquidation and they have a fixed dividend (paid before common stockholders), but investors must weigh these positives against the negatives, including giving up their voting rights and less potential for appreciation. 

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Related Definitions

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    Callable Preferred Stock

    A type of preferred stock that carries the provision that the issuer has the right to call in the stock at a certain price and retire it. Also known as "redeemable preferred stock".
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  • Common Stock

    A security that represents ownership in a corporation. Holders of common stock exercise control by electing a board of directors and voting on corporate policy. Common stockholders are ...
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  • Convertible Preferred Stock

    Preferred stock that includes an option for the holder to convert the preferred shares into a fixed number of common shares, usually anytime after a predetermined date. Also known as ...
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    • Contingent Voting Power

      A provision granting voting rights to preferred shareholders when the company cannot uphold the obligations outlined in the preferred shareholder arrangement. Contingent voting powers ...
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    • Participating Preferred Stock

      A type of preferred stock that gives the holder the right to receive dividends equal to the normally specified rate that preferred dividends receive as well as an additional dividend ...
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    • Prior Preferred Stock

      A type of preferred stock with a higher claim on assets and dividends than other issues of preferred stock. If a firm did not generate enough money to fulfill all of its dividend ...
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    • Junior Equity

      Junior equity refers to equity that ranks lower than some other form of equity. It normally refers to the common stock in a company because it is subordinate to preferred stock. Common ...
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    • Distribution Waterfall

      The order in which a private equity fund makes distributions. A distribution waterfall is a hierarchy delineating the order in which funds will be distributed, and may ensure that ...
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    • Cumulative Preferred Stock

      A type of preferred stock with a provision that stipulates that if any dividends have been omitted in the past, they must be paid out to preferred shareholders first, before common ...
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    • Preferred Dividend

      A dividend that is accrued and paid on a company's preferred shares. In the event that a company is unable to pay all dividends, claims to preferred dividends take precedence over claims ...
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