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What is preferred stock?

Preferred stock is type of ownership in the company that has equity and debt like features. Preferred stock guarantees shareholders a specific dividend, regardless of how the company performs financially. Preferred stock typically requires dividends to be paid in arrears, which means that even if the company can’t afford a dividend in the current year, they must pay the current year dividend out in future periods.

Additionally, preferred shareholders have liquidation preference over common stock shareholders. This means that if the company liquidates, preferred shareholders receive their share of the assets before any common stock shareholders are paid.

One of the main drawbacks is that preferred shareholders do not have voting rights. That means that preferred shareholders have no say in corporate policy and they have not say in the future of the company.

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