Preferred stock

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Definition

Preferred stock, also known as preferred shares or preferreds, is a type of equity towards a business that holds priority over common stock in relation to the payment of dividends and liquidation rights. Preferrers typically have no voting rights. It is the most common type of equity for a venture capital to hold and they are rated by major credit rating companies.

Benefits

Holding preferred stock means that stockholders have a higher claim to business earnings when excess cash is distributed in the form of dividends in comparison to common stockholders. Also, should a company liquidate, preferred shareholders are to be paid back first the money they invested before the common stockholders.
In regards to the type of dividends received with preferred stock, they are paid at regular and timed intervals to the shareholders. If a company misses a payment, it is required to pay preferred shareholders before all other payments, namely the common shareholders. Because these payments are set and guaranteed, preferred stock is referred to as a fixed-income security.

Risks

Preferred shares tend to not come with voting rights within company decisions. Also, preferred shares are paid fixed dividend payments which means is a company does very well, preferred shares cannot benefit as much from the profits.