We should discuss Preferred Stock. What makes stock common or preferred? It is the preferences on the stock that make that class of stock preferred.

Most preferred stocks prohibit the firm from paying common dividends when the preferred is in arrears;usually cumulative up to a limit. Some preferred stock is perpetual, but most new issues have sinking fund or call provisions which limit maturities. Preferred stock has no voting rights, but may require companies to place preferred stockholders on the board (sometimes a majority) if the dividend is passed. Is preferred stock closer to debt or common stock? What is its risk to investors? To issuers?

What are some of the advantages and disadvantages or preferred stock? Advantages Dividend obligation not contractual Avoids dilution of common stock Avoids large repayment of principal Disadvantages Preferred dividends not tax deductible, so typically costs more than debt Increases financial leverage, and hence the firms cost of common equity