Preferred stock is capital stock that has some contractual preferences over common stock. These particular stocks give stockholders a priority in distributions of earnings and assets in the event of liquidation. Dividend preferences are one of those features that make preferred stock attractive to investors. If the dividend rate on preferred stock is 5.00 per share, then common stockholders don’t receive their dividends until preferred stockholders receive their 5.00. Cumulative dividend is also a feature which means that preferred stockholders “receive current and any unpaid prior year dividends before common stockholders.”(Kimmel, Weygandt, & Kieso, 2010,). The other feature is Liquidation preference which means if the company goes under then preferred stockholders have a security provision helping them to still earn money on their investment. Preferred stock versus common stock is really just about the features provided to those within the two groups. As preference one would rather be a preferred stockholder just because of the added bonuses and security that comes with being a preferred stockholder. Preferred stockholder’s get paid first; they get present, and prior, and if the company folds they have an extra security of liquidated assets. Who wouldn’t want to be a preferred stockholder when one is talking about the almighty dollar? It is just like any other services or goods with any company that offers a preferred line of services or goods. Preferred in the minds of most is getting more bang for your buck. One may have to pay little more now, in order to get a lot later. I would, wouldn’t you?
Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2010). Financial accounting (7th ed.). Hoboken, NJ: John Wiley & Sons.
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References: Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2010). Financial accounting (7th ed.). Hoboken, NJ: John Wiley & Sons.
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