Preferred Stock

Preferred stock is also called as the hybrid stock as it is different from the common stock in the sense of having different combination of the features. Preferred stock contains the features of both the equity and the debt instrument that are not possessed by the common stock. Preferred stocks are considered to be more valuable as compared to the common stock but they are termed as low in value as compared to the bonds. More priority is given to the preferred stock as compared to the common stock when there is a question of liquidation of claim of dividend over the shares. These stocks are rated by different credit rating companies and their rating is always lower than the credit ratings of the bonds as they don’t guarantee that degree of interest payments as guaranteed by the bonds.

Different features of preferred stocks that are different from the common stock are that they are given preference at the time of dividends, they are given preference as a form of assets at the time of liquidation, when required they can be converted into common stock and mostly they stand at non-voting status.

There are two types of preferred stocks the cumulative stocks and the non-cumulative preferred stocks. The cumulative preferred stocks guarantee that a company has to pay dividend in any case later if it is unable to pay at the specified time. On the other hand non-cumulative preferred stock shows that every dividend that was not paid on specified date is passed and is lost if not declared.

 

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