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Why is preferred stock referred to as "preferred"?

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# 1) - 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?

#2) - What are the different types of dividends that corporations may issue? When should a corporation pay dividends? Would you prefer a stock dividend or a cash dividend? Why?

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This solution discusses characteristics of preferred stock in 675 words with references.

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QUESTION #1
Preferred stock is stock that may carry superior voting rights, dividend that are paid out prior to any other dividends, may have a convertibility feature, etc. as opposed to common stock. In fact, preferred stockholders will be paid out before common stock holders in the event of a bankruptcy. In other words, preferred stock has several rights attached to it that makes preferred over common stock. The central part is that the preference in paying the dividends are always made before any dividend can be declared on the common shares. The preferred stock holder shares get paid first in the event of an organizational liquidation (Harvard Business Services, 2008). There are different types of preferred stocks. For instance, preferred stock issued to venture capitalists is different than issued by a publicly traded company. Venture capitalist preferred stock has a liquidation preference and is almost always sold as common stock once the organization goes public. In lesson 26, "Basics of Preferred Stock (2008), some other features of preferred stock rights are as follows:
- Dividend Preference
- Redemption Rights
- Conversion Rights
- Anti-Dilution ...

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