Friday, June 24, 2011

Preferred Stock

Preferred stock, also called preferred shares, preference shares, or simply preferreds, is typically a 'higher ranking' stock than common stock, and its terms are negotiated between the corporation and the investor.

Preferred stock usually carries no voting rights, but may carry priority over common stock in the payment of dividends and upon liquidation. Preferred stock may carry a dividend that is paid out prior to any dividends being paid tocommon stock holders. Preferred stock may have a convertibility feature into common stock.

Similar to bonds, preferred stocks are rated by the major credit rating companies. The rating for preferreds is generally lower since preferred dividends do not carry the same guarantees as interest payments from bonds and they are junior to all creditors.

Monday, June 13, 2011

Restricted stock

Also known as letter stock or restricted securities, refers to stock of a company that is not fully transferable until certain conditions have been met. Upon satisfaction of those conditions, the stock becomes transferable by the person holding the award.

Another type of restricted stock is a form of compensation granted by a company. Typically, the conditions that allow the shares to be transferred are a period of time, when they vest. However, those restrictions can also be some sort of performance condition, such as the company reaching earnings per share goals or financial targets. Restricted stock is becoming a more prominent form of employee compensation, particularly to executives. It has come to prominence as stock options have fallen out of favor after the perceived excesses of the stock market in the early 21st century.