Preferred Stock Investing Introduction

Preferred stock is for those who wish a certain degree of priority in sharing in the earnings of a corporation at a stipulated rate. Preferred stocks are ownership shares with certain special rights; of these the principal one is that of receiving a specified dividend amount before the common shares receive anything at all.

It is for this reason that many investors are attracted to this type of security. While it is true that there are various kinds of preferred stock (see below), there are very few exceptions to the rule that there will always be provision for a first claim upon earnings and dividends, although such claims always rank after those of bondholders.

Many investors consider some preferred issues to be advantageous because of their "first claim" upon earnings and dividends. The articles of incorporation will set forth the number, class, and nature of such preferred stocks and the powers and special rights accruing to such stocks as well. Usually a specified number of preferred shares are authorized, although it is not a requirement that all such shares be issued at one time; it is left to the discretion of the directors to act in this matter as they see fit. Sometimes authorized preferred stocks are issued in series, such as 100,000 series A, followed by 50,000 series B, etc.