class of capital stock that has preference over common stock in the event of corporate liquidation and in the distribution of earnings. It usually pays dividends at a fixed rate, but there is also adjustable rate preferred and "Dutch auction" preferred. For example, 6% preferred stock means that the dividend equals 6% of the total par value of the outstanding shares. Except in unusual instances, no voting rights exist. Types include cumulative preferred stockand participating preferred stock.
stock that pays a fixed dividend and has claim to assets of a corporation ahead of common stockholders in event of liquidation. Preferred stock is sometimes called preference stock. Bank depositors have priority of claim over even preferred stockholders. Banks and bank holding companies have issued several classes of preferred stock, including perpetual preferred stock, which has no stated maturity date and is not redeemable by the holder; and limited life preferred stock, or preferred stock with a stated maturity of at least 25 years.
Under the risk-based capital guidelines adopted by U.S. banking regulatory agencies for bank holding companies and state chartered banks that are members of the Federal Reserve System, nonvoting preferred stock can be counted as part of a bank's core capital or Tier 1 capital. (Tier 1 capital must equal 4% of a bank's total assets. Preferred stock eligible for inclusion as Tier 1 capital can be noncumulative preferred stock, equal to 25% of common stock but not auction rate preferred stock, such as money market preferred stock.
part of the capital stock of a corporation that enjoys priority over the remaining stock, or common stock, in the distribution of dividends and in the event of dissolution of the corporation, also in the distribution of assets.
class of capital stock that pays dividends at a specified rate and that has preference over common stock in the payment of dividends and the liquidation of assets. Preferred stock does not ordinarily carry voting rights.
Most preferred stock is cumulative; if dividends are passed (not paid for any reason), they accumulate and must be paid before common dividends. A passed dividend on noncumulative preferred stock is generally gone forever. participating preferred stock entitles its holders to share in profits above and beyond the declared dividend, along with common shareholders, as distinguished from nonparticipating preferred, which is limited to the stipulated dividend. Adjustable-rate preferred stock pays a dividend that is adjustable, usually quarterly, based on changes in the Treasury bill rate or other money market rates. Convertible preferred stock is exchangeable for a given number of common shares and thus tends to be more volatile than nonconvertible preferred, which behaves more like a fixed-income bond.
