Preferred Stock Investing Dividends

Preferred stocks usually have a provision for the regular payment of dividends, there usually being a statement, in effect, that regular quarterly dividends at the stated rate must be declared and paid upon the preferred stock before any payment may be made upon any stock of lower rank, such as the common. In case several series of preferred are outstanding, it is customary to give them a rank such that, for example, the class A has first preference, followed by the class B, and then the common.

An additional feature of most present-day preferreds is the cumulative provision, which means that if any dividends should be skipped, then such arrears must be paid up in their entirety before any payment may be made upon the common. Some companies place a limit upon the extent of cumulation, often restricting it to the extent to which it has been earned.

As a rule, preferred stocks carry some rights as to their share in assets in time of liquidation, whether voluntary or involuntary. This is usually limited to the stated par value, plus accrued dividends, plus sometimes an additional penalty. It is to be noted here, and also strongly emphasized, that any preferred claims are always junior to those of bondholders in the event of liquidation.