Preferred Stock (Preferreds)
Definition of 'Preferred Stock (Preferreds)'
Preferred stock, also called preferred shares or just “preferreds,” is a security that entitles the stock holder to a fixed dividend, which is privileged over dividends paid to common-stock holders. Companies looking to raise capital quickly or as part of a larger strategy will issue preferred stock (considered an equity), which allows it to have a lower debt to equity ratio (helping it secure low interest rates on loans and helping it attract new investors).
TheStreet Explains ‘Preferred Stock (Preferreds)’
Those who hold preferred stock are paid dividends no matter what happens and they get paid first, before all others in the event of bankruptcy or corporate restructuring. In other words, those who hold preferred stock have what’s known as a higher claim on assets and earnings than those with common stock. Preferreds are also appealing to risk-averse investors; as equities, they are less volatile than common stock and have an average dividend yield that’s usually twice that of the dividend yield for common stock.
Those privileges come with trade-offs, however. Preferred stock holders do not typically have voting rights in the company (which would matter if a critical managerial decision is on the table, for instance) and shares of preferred stock trade very closely to their issue price. Some preferred stock is what’s known as “callable,” or eligible for the issuer (the company) to buy back from investors at their face value (or par value).
Terms Related to 'Preferred Stock (Preferreds)':
Securities, or shares, representing ownership of a company. Owners ...
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