Last modified on February 24, 2018, at 15:27

Preferred shares

Preferred shares (also called preferred stock) are a hybrid financial instrument having characteristics of both equity and debt.

They are like debt, in that they will carry a specify dividend rate. But like equity, the payment of the dividend is not guaranteed. However, dividends must be paid on preferred stock before holders of common stock can receive dividends (thus the name "preferred").

As such, a company that regularly pays dividends, but then fails to pay dividends on both common and preferred stock, is likely to be in financial trouble.