Preferred Stock
A contract-specific equity security whose income, priority, call, conversion, and voting rights vary materially by issue.
Preferred stock is an equity class with rights defined by its governing documents. It may have dividend priority over common stock and a stated liquidation preference, but terms can be cumulative or noncumulative, callable, convertible, participating, perpetual, floating-rate, or otherwise structured.
Frequently Asked Questions
Are preferred dividends fixed and guaranteed?
No. Terms vary, and dividends may be discretionary, deferrable, noncumulative, or subject to capital and regulatory restrictions. Nonpayment does not always constitute default in the same way as missed bond interest.
Does liquidation preference guarantee recovery?
No. Preferred holders rank behind creditors, and asset values, secured claims, costs, and the specific preference terms determine recovery. The market price may be far above or below liquidation preference.
Are preferred shares safer than common shares?
They may have dividend and liquidation priority over common equity, but they can still face credit, duration, call, extension, liquidity, tax, and subordination risk. Safety cannot be inferred from the label alone.
Do all preferred shares lack voting rights?
No. Voting rights vary and may arise after missed dividends, on specified corporate actions, or under jurisdiction-specific rules.