Preferred dividends

(noun)

Preferred stock usually carries no voting rights, but may carry a dividend and may have priority over common stock in the payment of dividends and upon liquidation.

Related Terms

Examples of Preferred dividends in the following topics:

  • The Cost of Preferred Stock

    • The cost of preferred stock is equal to the preferred dividend divided by the preferred stock price, plus the expected growth rate.
    • With preferred shares, investors are usually guaranteed a fixed dividend forever.
    • If preferred dividend is known and fixed, we can use the following equation to calculate the cost of capital for preferred stock .
    • This tells us that the cost of preferred stock is equal to the preferred dividend divided by the preferred stock price, plus the expected growth rate.
    • The cost of preferred stock is equal to the preferred dividend divided by the preferred stock price, plus the growth rate.

  • Accounting for Preferred Stock

    • Stock preferred as to dividends means that the preferred stockholders receive a specified dividend per share before common stockholders receive any dividends.
    • Noncumulative preferred stock is preferred stock in which a dividend expires whenever the dividend is not declared.
    • Cumulative preferred stock is preferred stock for which the right to receive a basic dividend, usually each quarter, accumulates if the dividend is not paid.
    • Companies must pay unpaid cumulative preferred dividends before paying any dividends on the common stock.
    • Stock may be preferred as to assets, dividends, or both.

  • Preferred Stock Rules and Rights

    • Preferred stock can include rights such as preemption, convertibility, callability, and dividend and liquidation preference.
    • Preferred stock usually carries no voting rights, but may carry a dividend and may have priority over common stock in the payment of dividends and upon liquidation.
    • The following features are usually associated with preferred stock: Preference in dividends preference in assets, in the event of liquidation, convertibility to common stock, callability, and at the option of the corporation.
    • Some preferred shares gain voting rights when the preferred dividends are in arrears for a substantial time.
    • Preferred stock may also have rights to cumulative dividends.

  • Investor Preferences

    • The significance of investors' dividend preferences is a contested topic in finance that has serious implications for dividend policy.
    • The role of investor preferences for dividends and the value of a firm are pieces of the dividend puzzle, which is the subject of much academic debate.
    • Investor preferences are first split between choosing dividend payments now, or future capital gains in lieu of dividends.
    • The investor's preference between the current cash dividend and the future capital gain has been viewed in kind.
    • This view is supported by both the Walter and Gordon models, which find that investors prefer those firms which pay regular dividends, and such dividends affect the market price of the share.

  • Impact of Dividend Policy on Clientele

    • Change in a firm's dividend policy may cause loss of old clientele and gain of new clientele, based on their different dividend preferences.
    • Some would instead prefer the regular income from dividends over capital gains.
    • Of those who prefer dividends over capital gains, there are further subsets of clientele; for example, investors might prefer a stock that pays a high dividend, while another subset might look for a balance between dividend payout and reinvestment in the company.
    • On the other hand, the firm may attract a new clientele group if its new dividend policy appeals to the group's dividend preferences.
    • Retirees are more likely to prefer high dividend payouts over capital gains since this provides them with cash income.

  • Provisions of Preferred Stock

    • Preferred shares have numerous rights which can be attached to them, such as cumulative dividends, convertibility, and participation.
    • Preferred stock shareholders already have rights to dividends before common stock shareholders, but cumulative preferred shares contain the provision that should a company fail to pay out dividends at any time at the stated rate, then the issuer will have to make up for it as time goes on.
    • There is a class of preferred shares known as "participating preferred stock. " These preferred issues offer holders the opportunity to receive extra dividends if the company achieves predetermined financial goals.
    • Almost all preferred shares have a negotiated, fixed-dividend amount.
    • Dividends are one of the privileges of stock ownership, and preferred shares get more rights to them than common shares do.

  • Dividend Yield Ratio

    • The dividend-price ratio is a company's annual dividend payments divided by market capitalization, or dividend per share divided by the price per share.
    • Preferred share dividend yield is the dividend payments on preferred shares, which are set out in the prospectus.
    • The name of the preferred share will typically include its yield at par.
    • For example, a 6% preferred share.
    • Unlike preferred stock, there is no stipulated dividend for common stock.

  • Defining Dividends

    • When it is time to make dividend payments, corporations always pay preferred stock owners first, and then common stock dividends are allocated after all preferred dividends are paid in full.
    • Dividends may be allocated in different forms of payment, outlined below:Cash dividends are the most common.
    • This may be a more palatable option for companies who would prefer to use its earnings towards growth of the company, rather than diverting them into cash dividends for shareholders.
    • In-dividend date is the last day, which is one trading day before the ex-dividend date, where the stock is said to be cum dividend ('with [including] dividend').
    • Dividends are one of the privileges of stock ownership, and preferred shares get more rights to them than common shares do.

  • Stock Dividends vs. Cash Dividends

    • Investors' preference for stock or cash depends on their inclinations toward factors such as liquidity, tax situation, and flexibility.
    • Therefore, if investors are not interested in a long-term investment, they will prefer regular cash payments over payments of additional stock.
    • For the firm, dividend policy directly relates to the capital structure of the firm, so choosing between stock dividends and cash dividends is an important consideration.
    • A firm that is still in its stages of growth will most likely prefer to retain its earnings and put them toward firm development, instead of sending them to their shareholders.
    • Assess whether a particular shareholder would prefer stock or cash dividends

  • Residual Dividend Model

    • The Residual Dividend Model first uses earnings to finance new projects, then distributes the remainder as dividends.
    • The Residual Dividend Model is a method a company uses to determine the dividend it will pay to its shareholders.
    • The Residual Dividend Model is an outgrowth of The Modigliani and Miller Theory that posits that dividends are irrelevant to investors.
    • This school of thought believes that investors do not state any preference between current dividends and capital gains.
    • The Residual Model dividend policy is a passive one and, in theory, does not influence market price because the same wealth is created for the investor regardless of the dividend.