Financial Management: Core Concepts, Third Edition

7.5 Preferred Stock

A rather unique stock sold by companies is preferred stock, an ownership class of stock that has preferential claims. It generally features a dividend that the company must pay out before dividends to common stockholders, and in case of bankruptcy and liquidation, it has priority claim to assets before common stockholders. The preferred stockholder is entitled to a set (or constant) dividend every period. The preferred stock usually has a stated or par value, but—unlike bonds—the company does not repay this par value at maturity because preferred stocks do not have a maturity date. The only time the company would pay this par value to the shareholder is if the company ceases operations or retires the preferred stock. Some ...