PREFER STOCK Meaning and
Definition
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"Prefer stock" refers to a type of stock, which grants its holders certain preferences or advantages over common stockholders. When a company issues prefer stock, it is usually done to attract investors who are seeking higher dividends or greater assurance of capital preservation.
Prefer stockholders have priority over common stockholders when it comes to receiving dividends or distributing assets in the event of a company liquidation. This means that before common stockholders receive any dividends, prefer stockholders are entitled to their fixed dividend payments. Depending on the terms of the prefer stock, these dividends may be fixed or have a certain rate of return.
Additionally, prefer stockholders may have a higher claim on the company's assets in the event of bankruptcy or liquidation. In case of company liquidation, prefer stockholders are typically paid off before common stockholders and have a higher chance of recovering their investment.
However, prefer stockholders usually have limited or no voting rights in the company. They might not have the power to influence major decisions, such as electing the company's board of directors.
Overall, prefer stock provides investors with a more secure and predictable income stream than common stock. It offers advantages in terms of dividend payments and asset distribution, making it an attractive investment option for those who prioritize stability and regular income over potential capital growth.
