Preferred Stock

Participating Preferred

Holders of ____________ stock are entitled to receive the stated preferred rate, as well as additional common dividends. The holder of ____________ receives the dividend payable to the common stockholders over and above the stated preferred dividend.

Benefits of Preferred Stocks

If a company is to be liquidated, preferred stockholders have priority over common stockholders. If a company does not have enough earnings in a period to pay dividends to both the preferred and the common stockholders, those with preferred stock will be the ones paid.

Cumulative Preferred

A _________ feature protects the investor in cases when a corporation is having financial difficulties and cannot pay the dividend. Dividends on ______________ stock accumulate in arrears until the corporation is able to pay them. If the dividend on a ________________ stock is missed, it is sill owed to the holder. Dividends in arrears on __________ are always the first dividends to be paid. If the company wants to pay a dividend to common shareholders, it must first pay the dividends in arrears, as well as the stated preferred dividend, before common shareholders receive anything.

Convertible Preferred

A __________ feature allows the preferred stockholder to _________ or exchange their preferred shares for common shares at a fixed price known as the conversion price.

Callable Preferred

A ____ feature is the only feature that benefits the company and not the investor. A ______ feature allows the corporation to ______ in or redeem the preferred shares at its discretion or after some period of time has expired. Most ___________ stock may not be called in during the first few years after their issuance. This feature, which does not allow the stock to be ________ in its early years, is known as _______ protection. Many _________ preferred shares will be ______ at a premium price above par. For example a $100 par preferred stock may be _______ at $103. The main reasons a company would _____ in its preferred shares would be to eliminate the fixed dividend payment or to sell a new preferred stock with a lower dividend rate when interest rates decline. Preferred stock is more likely to be called by the corporation when interest rates decline.

Straight/Noncumulative

The ________ preferred stock has no additional features. The holder is entitled to the stated dividend rate and nothing else. If the corporation is unable to pay the dividend, it is not owed to the investor.

Adjustable-rate preferred stock

dividends vary with some benchmark, typically the T-bill rate. Because ________ stock always provides returns consistent with prevailing interest rates, its share price does not tend to move much.