Preferred Stock
Candlefocus EditorPreferred stockholders typically enjoy a higher claim than common stockholders in distribution or dividends of a corporation's earnings, meaning they receive payments before common stockholders. Dividends are typically fixed and considered a form of “guaranteed income” for preferred stockholders, as well as a possible reward for investing in the company prior to its success. Preferred stock also receives higher priority in the event of a liquidation, meaning preferred stockholders will be paid from business assets before common stockholders.
One of the most important distinctions between preferred and common stock is voting rights. Unlike common stockholders who can vote on corporate decisions and leadership, preferred stockholders may not have voting rights at all, or they may only have limited voting rights. Without voting rights, preferred stockholders have to rely less on a corporation’s management and have greater security in their investments.
Due to their hybrid nature, preferred stocks can be tailored to meet an investor’s needs. Preferred stocks are issued with different features, such as cumulative and non-cumulative dividends, callable/non-callable stocks, stability and growth potential. Preferred stocks have a greater degree of customization than common stocks allowing investors to customize their positions for optimal risk and reward characteristics.
Overall, preferred stock can be an appealing investment for those looking for a steady stream of income and capital appreciation. The flexibility of the preferred stock, the higher distribution of dividends, and limited and/or non-voting rights can make it attractive to certain types of investors. Ultimately, investors should weigh their options carefully and consider their own risk tolerance level and financial goals before investing in this or any equity product.