BU111 Lecture Notes - Lecture 10: Preferred Stock, Common Stock
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BU111 Full Course Notes
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If they do(cid:374)"t ha(cid:448)e e(cid:374)ough (cid:373)o(cid:374)ey to pay the(cid:373), they (cid:449)o(cid:374)"t. If they do, they can decide to reinvest the money into their own company trying to make their value go up instead of paying investor the dividends: risk (higher than bonds) Common stock vs preferred stock: preferred: hybrid (characteristics of bonds and common stock; equity and debt; no voting rights but still an owner) Trade-off for not voting: promised dividends (paid after debt holders) Larger market (easier to find and easier to sell) Dividend is still a discretionary payment (only if the company has enough) Features (not required but could be attached) Redemption: company can choose to redeem/buy the preferred share (cid:271)a(cid:272)k so they do(cid:374)"t ha(cid:448)e to pay preferred di(cid:448)ide(cid:374)ds. Convertibility: can convert to a common stock. Cumulative: right to dividends so if the company is currently not paying dividends, it accumulates and must be paid to them before common.
