Bob Brinker's Marketimer

  Monday November 20, 2017

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WHAT IS PREFERRED STOCK?
Learn even more about this topic with the Encyclopedia of Personal Finance™

All stocks are units of ownership in corporate America. One way a company raises money at start-up or to expand is by selling ownership shares?or stocks?in the organization. Stock certificates list the name of the owner and the number of shares owned. The certificates also indicate the class of stock owned?common or preferred.

Each entitles the stockholders to somewhat different ownership rights. Owners of preferred stock receive dividends from company earnings at a set rate, which is usually higher than the dividend rates received by owners of common stock. The amounts may be a specific dollar figure or a percentage of par. Par is the face value the company has put on the stock?for example, $1 per share. It has no relation to what the stock may later sell for on the secondary market.

Preferred stock owners always receive their dividends before the company pays any dividends to common stockholders. And, in the event of a company's liquidation, preferred stockholders would receive payment for their shares before owners of common stock receive any payment.

Another difference between preferred and common stock is that preferred stock may not always entitle the shareholders to vote in company elections.

Preferred stockholders generally bear less risk than common stockholders. They also will likely receive lower total returns; however, they enjoy greater safety in return.

Now that you have reviewed the basic features of preferred stocks, let's discuss how to obtain the stocks.




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