subject: Prefered Stock Some Pros And Cons [print this page] Money spent in prefered stock has many advantages and disadvantages. Investing money in preferred stock seems to assure you a constant flow of income in the way of prefered stock dividends. This signifies a preferred stock dealer can be assured of money from dividends, which is not accessible for a common stock holder. For a trader, it is necessary to be aware of two kinds of stocks common stocks as well as preferred stocks.
Preferred stocks are a combination of both common as appropriately as equity. However, these types of stocks can be converted to common stocks, upon the ratio predetermined by the company. There are a particular advantages of using these types of stocks :
In case of these kinds of stocks, the investor has the all right to a dividend income , that has to be paid before any dividends have been completely paid to a common stock holder.
In the instance of liquidation, the holders of these types of stocks shall get the priorities in the issues of asset payments, instead of the common stock holders.
Each and every time a dividend is being declared by the organization, the preferred stock holders receive money first than the common stock holders.
Nevertheless, there are a small number of disadvantages of investing in these kinds of stocks, as listed below:
The most important one is that a person does not get a right to vote in any of these kinds of stocks. In particular, cases, companies issue these types of stocks for preventing hostile takeovers. Nevertheless, a common stock holder possesses the right of voting.
Another major downside of these stocks is that, the organization can call them after some days. Due to this reason, preferred stocks are not traded as compared to common stocks.
As, pros and cons exist in each business transaction, it is much better to invest in these shares as they ensure a flow of money.
