Financial Management: Principles and Applications, 13/e

10.3 Preferred Stock

In Chapter 2, we referred to preferred stock as a hybrid security that shares some of the features of bonds and common stock. For example, like bonds that pay a contractually set interest payment, preferred stock has a contractually stated cash dividend that is paid to the preferred stockholder. Like common stock, and unlike bonds, there is no maturity for a preferred stock issue. Let’s consider some of the key features of preferred stock that make it unique.

Features of Preferred Stock

In general, the size of the preferred stock dividend is fixed, and it is stated either as a dollar amount or as a percentage of the preferred stock’s par value. For example, DuPont (DD.PB) has issued $4.50 preferred stock, meaning that the ...