preferred stock

noun

Definition of preferred stock

: stock guaranteed priority by a corporation's charter over common stock in the payment of dividends and usually in the distribution of assets

Recent Examples of preferred stock from the Web

The purchase of convertible perpetual preferred stock could eventually make Harbin Pharmaceutical the biggest shareholder in the vitamin brand.

— Bloomberg.com, "Chinese Dealmaking Spree in the U.S. Faces Threat," 7 Mar. 2018
First-lien creditors have agreed to provide Claire’s with $575 million of new capital, including a new $250 million first-lien term loan and $250 million as a preferred stock investment.

— becky yerak, WSJ, "Claire’s Files for Chapter 11 Bankruptcy," 19 Mar. 2018
However, the original investment was in the form of preferred stock and warrants to buy common shares, which were recently exercised.

— matthew frankel, USA TODAY, "Warren Buffett's 10 largest current stock bets," 15 Dec. 2017
Discovery Communications is worth about $15 billion, including its preferred stocks, according to S&P Global Market Intelligence.

— amol sharma, WSJ, "Discovery Communications and Scripps Networks in Talks to Combine," 18 July 2017
The deal was valued at around $750 million, including the repayment of debt and redemption of its preferred stock.

— allison prang, WSJ, "First Data Mistakenly Announces Acquisition Plan for BluePay," 19 Oct. 2017
The preferred stock, which also had special voting rights, is held by early venture investors including Benchmark.

— katie benner and mike isaac, New York Times, "Uber’s Board Approves Changes to Reshape Company’s Power Balance," 3 Oct. 2017
In the 2011 deal, Buffett’s Berkshire Hathaway Inc. invested $5 billion in Bank of America in exchange for preferred stock and the right to buy 700 million common shares, a stake now worth $17 billion.

— bess levin, vanityfair.com, "Goldman Finds New Way to Make Money Off Human Misery," 30 June 2017

These example sentences are selected automatically from various online news sources to reflect current usage of the word 'preferred stock.' Views expressed in the examples do not represent the opinion of Merriam-Webster or its editors. Send us feedback.

First Known Use of preferred stock

circa 1859

in the meaning defined above

See Words from the same year

NEW! Time Traveler

Financial Definition of PREFERRED STOCK

preferred stock

noun

What It Is

Like shares of common stock, shares of preferred stock represent an ownership stake in a company -- in other words, a claim on its assets and earnings. However, as the term suggests, "preferred" stock carries certain advantages. While preferred stock usually doesn't carry the same voting rights as common stock, it does have priority when it comes to dividends and bankruptcy. And like common stock, preferred stock can be bought and sold through a broker.

How It Works

The primary difference between preferred stock and common stock relates to the order in which shareholders are paid in the event of bankruptcy or other corporate restructuring. If the issuing company seeks bankruptcy protection, then the owners of preferred shares take priority over common shareholders when it comes time to pay dividends and liquidate the company's assets.

The other main difference between preferred and common shares relates to dividends. Although dividends paid on common stock are not guaranteed and can fluctuate from quarter to quarter, preferred shareholders are usually guaranteed a fixed dividend paid on a regular basis. As a result, preferred stocks often act similar to bonds. The average dividend yield paid out on preferred stock has recently ranged from 5% to 7%. That compares to historical yields of around 6% for investment quality corporate bonds, and roughly 2% to 3% dividends for common stocks.

Why It Matters

Preferred stock is a good alternative for risk-averse investors wanting to buy equities. In general, they are less volatile then common stock and provide a better stream of dividends. Most preferred shares are also callable, meaning the issuer can redeem the shares at any time, so they provide investors with more options than common shares. But for all of these advantages, preferred stock has one downside -- its shareholders generally do not enjoy the same voting privileges as the holders of common stock. Not all investors actively participate in voting, but it may be a deterent for some investors.

Source: Investing Answers