Preferred Stock

(redirected from Preference Share Capital)
Also found in: Dictionary, Thesaurus, Financial, Encyclopedia.
Related to Preference Share Capital: ordinary shares, cumulative preference shares

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 periodicals archive ?
Equities accounted for more than 40% of its investment assets in 2004, although the exposure to equity markets is matched to some extent by the required returns on its preference share capital.
Honeywell (NYSE: HON) today confirmed that it has received final clearance from the European Commission to acquire the entire ordinary and preference share capital of Novar plc.
Honeywell (NYSE: HON) today announced that it has reached agreement with the board of directors of Novar plc on the terms of recommended Offers for the entire issued ordinary and preference share capital of Novar.