preferred stock

Definition

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 stock, non-cumulative preferred stock, participating preferred stock, and convertible preferred stock. also called preference shares.

For more information see Common Stock vs. Preferred Stock, and Stock Classes at InvestorGuide.com.

Use preferred stock in a sentence

The average investor often grumbled about high level executives buying and selling preferred stock, but that was the way the corporate world worked.

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I recently purchased preferred stock in XYZ company as it afforded a greater current dividend rate than its common stock and allows for conversion to common in the future.

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When the company founder sold shares in his company, he made sure to reserve a different class of preferred stock for himself to make sure he maintained precedence for dividends.

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income-mixed fund new money preferred
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