What Are The Benefits Of Preferred Stocks?

Discussion in 'General Trading Discussion' started by deepika sharma, Jun 5, 2019.

  1. deepika sharma

    deepika sharma Member

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    Preferred stocks or preferred stocks are one of the financial instruments that hold some special characteristics which differentiate it from other financial instruments like common stocks and bonds. However, it represents the ownership stake in a company like the common stock. But, it has certain benefits that lack in common stock which is why many investors love preferred stock so much.



    Benefits of Preferred Stocks
    As the name referred, ‘Preferred Stock’ is a company’s stock that have high priority claim over common stock when it comes to the company’s assets and earnings. Technically, preferred stock is a type of equity securities but have many similarities with debt instruments. Stakeholders who own preferred stock


    have given high-priority over stakeholders of common stock in dividend payments.


    So, every year, when the corporation decides to pay the dividends, the preferred shareholders receive dividend payments before the common shareholders. The regular dividend payments are what preferred stock to act in a similar manner to bonds. The regular dividend payment is not the only thing where the ‘preferred shares’ have high-priority over ‘common shares’ but also in the case of corporate restructuring and event of bankruptcy where the preferred stockholders will get paid before the common stockholders.

    Apart from this, preferred shares have convertibility the feature that allows it to a predetermined number of common shares- either at the specific date or with the approval of the board of directors of the company.

    The only downside of preferred stock is the preferred stockholders do not assign any voting rights however the common stockholders do.
     

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