Preferred Stock

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Preferred Stock

Stock shares that have preferential rights to dividends or to amounts distributable on liquidation, or to both, ahead of common shareholders.

Preferred stock is given preference over common stock. Holders of preferred stock receive dividends at a fixed annual rate. The earnings of a corporation are applied to this payment before common stockholders receive dividends. If corporate earnings are insufficient for the fixed annual dividend, the preferred stock will absorb the total amount of earnings, and the common stockholders will be precluded from receiving a dividend. When corporate income exceeds the amount that is needed to pay preferred stockholders, the remainder is generally paid to common stockholders. In special situations, the remainder may be distributed pro rata to both classes of stock, in which case the preferred stock is said to "participate" with the common stock.

Preferred stock can be cumulative or noncumulative. If it is cumulative and if the fixed dividend remains unpaid, it becomes a debit upon the surplus earnings of succeeding years. Accumulated dividends must be paid in full before common stockholders can receive dividends. When preferred stock is noncumulative, its preference is extinguished by the failure of the corporation to have sufficient earnings to pay the fixed dividend in a given year.

preferred stock

n. a class of shares of stock in a corporation which gives the holders priority in payment of dividends (and distribution of assets in case of dissolution of the corporation) over owners of "common" stock at a fixed rate. While the assurance of first chance at profits is a psychological and real benefit, preferred stock shareholders do not participate in higher dividends if the corporation makes large profits, and usually cannot vote for directors. (See: corporation, stock, common stock)

References in classic literature ?
After her came Scraps and the Scarecrow, who did not wish to sleep but preferred to keep out of the way of the mischievous Tottenhots.
It suited Mary best to think Henrietta the one preferred on the very account of Charles Hayter, whose pretensions she wished to see put an end to.
From Joppa, Jerusalem, the River Jordan, the Sea of Tiberias, Nazareth, Bethany, Bethlehem, and other points of interest in the Holy Land can be visited, and here those who may have preferred to make the journey from Beirut through the country, passing through Damascus, Galilee, Capernaum, Samaria, and by the River Jordan and Sea of Tiberias, can rejoin the steamer.
He strung his bow with tendons from the buck upon which he had dined his first evening upon the new shore, and though he would have preferred the gut of Sheeta for the purpose, he was content to wait until opportunity permitted him to kill one of the great cats.
Pengarth, who was a trifle nervous, preferred to stand.
But the Candy Man did not go to his room, because he said he preferred to stay and talk with the Scarecrow and Tik-tok and the Wizard and Tin Woodman, whom he declared the queerest people he had ever met.
Afterward she offered to share with Billina, but the hen murmured something about "dead things" and said she preferred her bugs and ants.