What are Preferred Stocks?

Preferred stock, also called preferred shares or preference shares, is typically a higher ranking stock than voting shares, thus carry no voting rights but may carry superior 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 to common stock holders. The main benefit to owning preferred stock is that the investor has a great claim on the company’s assets than common stockholders.
TYPES OF PREFFERED STOCKS:
1. CUMULATIVE PREFFERED: Preferred stocks on which dividends accrue (accumulate or increase) in the event when the issuer does not make timely dividend payments. Most preferred stocks are cumulative stocks.
2. NON-CUMULATIVE PREFERRED: Preferred stocks on which unpaid dividends are not accrue.
3. PARTICIPATING PREFERRED: Preferred stocks which provides a specific dividend that is paid before any dividend are paid to common stock holders in the event of liquidation.
4. CONVERTIBLE PREFERRED: Preferred stocks that can be converted into a specific amount of common stock at the holder’s option.
5. ADJUSTABLE RATE PERFERRED: Preferred stocks whose dividend changes, usually quarterly, according to changes in the Treasury bill or on a similar benchmark.
On the mark of preference Preferred stock can also be divided into two parts:
1. FIRST PREFERENCE STOCK: Preferred stock which takes precedence over other preferred and common stock with regard to dividends and assets.
2. SECOND PREFERENCE STOCK: Preferred stocks which have rights subordinate to those of other preferred stock on dividend and assets. That means they are given preference after the First Preferred Stock.