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.

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