NextPrevious

Individual Stocks

Selecting Individual Stocks

What is “preferred stock”?

Preferred stock is stock or equities issued by a company that combines some qualities of common stock with some qualities of a bond. When you own preferred stock in a company, it is considered preferred because under normal circumstances, the shareholder is paid a dividend on the shares before all other classes of stock issued by the company. In the event of the company’s bankruptcy or liquidation, preferred shareholders receive their share of assets before common stockholders (but behind bondholders). The terms of the preferred shares in which you may invest are found in the prospectus of the investment offering, and in the company’s articles of association. Preferred stock is also rated by many ratings agencies (e.g., Moody’s). Preferred stock may be either cumulative (the company must pay a stated dividend in arrears, if it misses that payment) or non-cumulative (the company does not have to pay a missed stated dividend payment in arrears). Each class of preferred stock in a company confers upon the owner certain rights, as each class or issuance of preferred stock may have different terms. Convertible preferred stock allows you to convert the preferred stock to shares of common stock. Investors in preferred stock generally do not experience the great variations in price that common stockholders experience, so long as the company is paying its stated dividends to the preferred shareholders regularly.



Close

This is a web preview of the "The Handy Investing Answer Book" app. Many features only work on your mobile device. If you like what you see, we hope you will consider buying. Get the App