Preferred stocks or the preference shares are special stocks that have both the properties of debt and equity. They are issued to the preferred shareholders with the fixed dividend payout condition for the whole tenure of the stocks. It has the following characteristics
Preferred stocks are considered same as the debt as it has some predefined dividend payout percentage, same as interest payment for debt.
It is also considered as stock as they were divided in terms of shares and issued through stock exchange.
They are included in the total share capital.
They have the higher priority over other common shareholders and lower priority than the bondholders on the company’s assets at the time of liquidation.
The preferred share price is decided based on the current market price and the dividend is fixed based on the interest on debt and required rate of return by the investors.
It is an effective way to raise money from the investors through the stock market.