Why is preferred stock referred to as "preferred"? What are some of the features that are added to preferred stock to make it more attractive to investors? Would you select preferred stock or common stock as an investment? Why?
It is referred to as "preferred" because it carries additional rights above and beyond those conferred by common stock.
Here is a list of some of the features that are added to preferred stock to make it more attractive to investors:
1. Preference in dividends
Before a dividend can be declared on the common shares, any dividend obligation to the preferred shares must be satisfied.
2. The dividend rights are often cumulative, such that if the dividend is not paid it accumulates in arrears.
3. Preferred stock has a par value or liquidation value associated with it. This represents the amount of capital ...
Preferred Stock and Common Stock are discussed. The solution is detailed and well presented. The response received a rating of "5/5" from the student who originally posted the question.