PREFERENCE STOCKS Meaning and
Definition
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Preference stocks, also known as preferred stocks or preferred shares, are a class of stock or equity in a company that provides investors with certain rights and privileges which distinguish them from common stocks.
Preference stocks typically pay a fixed dividend, which takes priority over dividends paid to common stockholders. These dividends, fixed as a percentage of the stock's par value, are usually paid out before any dividend is distributed to common stockholders. This feature makes preference stocks appealing to income-seeking investors as they provide a consistent income stream.
One of the primary benefits of preference stocks is that, in the event of liquidation or bankruptcy of the company, preference stockholders have a higher claim on assets than common stockholders. They generally have a priority in receiving their investment back before common stockholders are entitled to any distribution.
Unlike common stocks, which confer voting rights on stockholders, preference stocks often do not provide voting power. However, in some cases, they may have special voting rights on specific matters affecting their interests, such as changes to dividend policies or the issuance of additional preference shares.
Preference stocks can be cumulative or non-cumulative. Cumulative preference stocks ensure that if the company is unable to pay dividends in a particular period, the unpaid dividends accrue and must be paid in future periods before any dividends are paid to common stockholders. Non-cumulative preference stocks do not have this feature, and if the company fails to pay dividends for a particular period, the missed dividends are not carried forward.
Overall, preference stocks are a type of investment vehicle that offers stable income and potential capital appreciation, while also providing certain rights and benefits different from those associated with common stocks.
Common Misspellings for PREFERENCE STOCKS
- oreference stocks
- lreference stocks
- -reference stocks
- 0reference stocks
- peeference stocks
- pdeference stocks
- pfeference stocks
- pteference stocks
- p5eference stocks
- p4eference stocks
- prwference stocks
- prsference stocks
- prdference stocks
- prrference stocks
- pr4ference stocks
- pr3ference stocks
- prederence stocks
- precerence stocks
- preverence stocks
Etymology of PREFERENCE STOCKS
The term "preference stocks" originated in the financial world and the etymology of these words can be broken down as follows:
1. Preference: The word "preference" comes from the Latin word "praeferre", which means "to carry or bear before others". In the context of finance, preference refers to a greater liking or priority given to one thing over others.
2. Stocks: The term "stocks" can be traced back to the Old English word "stoc", which originally meant the trunk of a tree. Over time, it evolved to refer to a supply or store, and eventually came to denote shares or ownership in a company.
When combined, "preference stocks" refers to a specific type of stock in a corporation that typically grants the holder a preferential claim on the company's earnings and assets, often with fixed dividends.
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