preferred stock?

Question

what is the definition of preferred stock?

Answer 1

A preferred stock is a stock whose dividends have preference over common stockholders and who hold preference in receiving assets in the event of liquidation. In this case, preferred means "gets their money first."

Now preferred shares come in a variety of types and flavors. The simplest variety is cumulative convertable preferred stock. A cumulative preferred is a preferred stock where any dividends not paid, block dividends from being paid to common shareholders and which accumulate, often at interest, until fully paid.

The convertable feature is the ability to convert the preferred into common shares at a fixed price, usually well above the current price of the common share at issue.

Answer 2

Dividends on preferred stock are paid before any dividends can be paid on common stock. The dividend doesn't change so preferred stock prices act much like bonds.