Preferred Stock
• it’s like common stock - no fixed maturity.
– Technically, it’s part of equity capital.
• it’s like debt - preferred dividends are fixed.
– Missing a preferred dividend does not constitute default, but preferred dividends are cumulative.
• Usually sold for $25, $50, or $100 per share.
• Dividends are fixed either as a dollar amount or as a percentage of par values.
• Example: In 1988, Xerox issued $75 million of 8.25% preferred stock at $50 per share.
– $4.125 is the fixed, annual dividend per share.
Preferred Stock Features
• Firms may have multiple classes of preferred, each with different features.
• Priority: lower than debt, higher than common stock.
• Cumulative feature: all past unpaid preferred stock dividends must be paid before any common stock dividends are declared.
• Protective provisions are common.
• Convertibility: many preferreds are convertible into common shares.
• Adjustable rate preferreds have dividends tied to interest rates.
• Participation: some (very few) preferreds have dividends tied to the firm’s earnings.
• PIK Preferred: Pay-in-kind preferred stocks pay additional preferred shares to investors rather than cash dividends.
• Retirement: Most preferreds are callable, and many include a sinking fund provision to set cash aside for the purpose of retiring preferred shares.
Common Stock
Common Stock is a variable-income security. (dividends may be increased or decreased, depending on earnings).
• represents equity or ownership.
• includes voting rights.
• Limited liability: liability is limited to amount of owners’ investment.
• Priority: lower than debt and preferred.
Common Stock Characteristics
Claim on Income - a stockholder has a claim on the firm’s residual income.
Claim on Assets - a stockholder has a residual claim on the firm’s assets in case of liquidation.
Preemptive Rights - stockholders may share proportionally in any new stock issues.
Voting Rights - right to vote for the firm’s board of directors.
http://k4yu.blogspot.com
0 comments:
Posting Komentar