Preferred Stock
Also known as: preferred shares · preferred equity · convertible preferred
DEFINITION
Preferred stock is a hybrid security with characteristics of both debt and equity. Holders receive a fixed dividend (cumulative or non-cumulative) ahead of common stockholders, have priority in liquidation, but usually no voting rights. Preferred can be perpetual or callable, convertible to common at a set ratio, or carry adjustable rates. In SEC filings, preferred is disclosed in the equity section of the balance sheet and detailed in the notes.
WHY IT MATTERS FOR RETAIL INVESTORS
For retail investors, preferred stock is mostly relevant in two contexts: (1) bank and insurance preferreds yield more than bonds with limited upside; (2) pre-IPO preferred series (Series A, B, C, etc.) appear in S-1 capitalization tables and explain the dilution math behind founder ownership. Series-numbered preferred always converts to common at IPO; track the conversion ratios to understand who gets what.
OFFICIAL SEC SOURCE
https://www.sec.gov/about/answers/preferredstock.htm ↗RELATED TERMS
See Preferred Stock in a real filing
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