Preferred Stock

Examples of Preferred Stock in the following topics:

• Preferred Stock

  • Preferred stock usually carries no voting rights, but may carry a dividend, have priority over common stock upon liquidation and/or have other benefits.
  • Preferred stock (also called preferred shares, preference shares or simply preferreds) is an equity security with properties of both an equity and a debt instrument , and is generally considered a hybrid instrument.
  • Similar to bonds, preferred stocks are rated by the major credit-rating companies.
  • Details with regards to the rights associated with preferred stock will vary with the business entity that issues the shares, and preferred stock can come in a number of different classes.
  • Some examples are prior preferred stock (highest priority), preference preferred stock, convertible preferred stock (exchangeable for common stock), cumulative preferred stock, exchangeable preferred stock, participating preferred stock, putable preferred stock, monthly income preferred stock, and non-cumulative preferred stock.

• The Cost of Preferred Stock

  • The cost of preferred stock is equal to the preferred dividend divided by the preferred stock price, plus the expected growth rate.
  • The price of a preferred stock is $100.
  • The cost of preferred stock is 13%.
  • This tells us that the cost of preferred stock is equal to the preferred dividend divided by the preferred stock price, plus the expected growth rate.
  • The cost of preferred stock is equal to the preferred dividend divided by the preferred stock price, plus the growth rate.

• Accounting for Preferred Stock

  • When a corporation issues both preferred and common stock, the preferred stock may be:
  • Most preferred stock has a par value.
  • Stock preferred as to assets is preferred stock that receives special treatment in liquidation.
  • Convertible preferred stock is preferred stock that is convertible into common stock of the issuing corporation.
  • Convertible preferred stock is uncommon, most preferred stock is nonconvertible.

• Preferred Stock Rules and Rights

  • Preferred stock can include rights such as preemption, convertibility, callability, and dividend and liquidation preference.
  • Terms of the preferred stock are stated in a "Certificate of Designation. "
  • Preferred stock is a special class of shares that may have any combination of features not possessed by common stock.
  • The following features are usually associated with preferred stock: Preference in dividends preference in assets, in the event of liquidation, convertibility to common stock, callability, and at the option of the corporation.
  • Preferred stock may also have rights to cumulative dividends.

• Common and Preferred Stock

  • Preferred stock is considered to be a form of equity security.
  • Preferred stock generally has preference in receiving dividend payments and always has preference in asset claims during liquidation.
  • In general, there are four different types of preferred stock: cumulative preferred stock, non-cumulative preferred stock, participating preferred stock, and convertible preferred stock.
  • Convertible preferred stock are preferred issues which holders can exchange for a predetermined number of the company's common-stock shares.
  • It is a one-way deal, and an individual cannot convert the common stock back to preferred stock, if they have already exchanged their preferred stock with the company.

• Convertible Stock

  • Convertible securities can include bonds that pay interest or preferred stocks that pay dividends.
  • Unlike common stock, preferred shares usually have no voting rights.
  • Accounting principles require the reporting of convertible preferred stock in the same manner as non-convertible preferreds.
  • Preferred stock is reported in the stockholder's equity section as the number of shares outstanding, multiplied by the stock's market price.
  • A public company's preferred stock is designated as convertible if it can be exchanged for common stock.

• Claim to Income

  • In the cases of bankruptcy and dividend distribution, preferred stock shareholders will receive assets before common stock shareholders.
  • Preferred and common stock have varying claims to income which will change from one equity issuer to another.
  • Preferred stock also has the first right to receive dividends.
  • Preferred stock may or may not have a fixed liquidation value (or par value) associated with it.
  • Preferred stock has a claim on liquidation proceeds of a stock corporation equal to its par (or liquidation) value, unless otherwise negotiated.

• Provisions of Preferred Stock

  • Preferred stock may be entitled to numerous rights, depending on what is designated by the issuer.
  • Convertible preferred stock can be exchanged for a predetermined number of company common stock shares.
  • Once converted, the common stock cannot be converted back to preferred status.
  • There is a class of preferred shares known as "participating preferred stock. " These preferred issues offer holders the opportunity to receive extra dividends if the company achieves predetermined financial goals.
  • Describe in detail the different types of provisions for preferred stock

• Dividend Preference

  • Preferred stock is a class of capital stock that carries certain features or rights not carried by common stock.
  • Within the basic class of preferred stock, a company may have several specific classes of preferred stock, each with different dividend rates or other features.
  • It is called "common" to distinguish it from preferred stock.
  • Preferred stock (also called preferred shares, preference shares or simply preferreds) is an equity security with properties of both an equity and a debt instrument, and is generally considered a hybrid instrument.
  • Terms of the preferred stock are stated in a "Certificate of Designation. "

• Common Stock

  • Common stock is a form of ownership and equity, different from preferred stock, that still earns rights of ownership for its shareholders.
  • It is called "common" to distinguish it from preferred stock.
  • If both types of stock exist, common stock holders cannot be paid dividends until all preferred stock dividends (including payments in arrears) are paid in full.
  • Should bankruptcy occur, common stock shareholders receive any remaining funds after the bondholders, creditors (including employees), and preferred stockholders.
  • It must be remembered that Preferred stock generally does not carry voting rights.