Finance Dictionary
Preferred Stock
Definition
A class of ownership in a corporation that has a higher claim on its assets and earnings than common stock.
Deep Dive
Preferred stock represents a class of ownership in a corporation that carries a higher claim on the company's assets and earnings compared to common stock. Holders of preferred stock typically receive fixed dividend payments before common stockholders and have priority in receiving payouts in the event of liquidation. However, unlike common stockholders, preferred shareholders usually do not have voting rights in corporate governance, which is a trade-off for their greater financial security.
Examples & Use Cases
- 1A utility company issuing preferred shares to fund infrastructure projects
- 2A bank offering preferred stock with a fixed 5% annual dividend
- 3An investor holding preferred shares that pay out before common shares during bankruptcy proceedings
Related Terms
Common StockDividendHybrid Security