Preferred Stock (Preferred Shares)
A preferred stock or preferred shares are other type of shares than common shares. They are called preferred only because of priority over common shares in case of a firm’s termination.
The most popular preferred stock pays predetermined fixed dividend every year when necessary profit is earned. If not, then preferred shares skip the payments unless they are cumulative. If preferred shares are cumulative they compound dividend payments until the company gets profitable and gets able to pay dividend payments for the lost periods. Investing in such preferred stocks according to their characteristics is more comparable to investing in the long term/perpetual bonds than investing in stocks.
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