Management Notes

Reference Notes for Management

Disadvantages of Preferred Stock – 5 Major Disadvantages | Corporate Finance

Disadvantages of Preferred Stock

What do you mean by preferred stock?

Preferred Stock which is also called preference share is a hybrid security with features of both debt and common stock which entitles the holder to pay a fixed dividend. Preferred shares generally have a dividend that must be paid out before dividends to common shareholders, and the shares usually do not carry voting rights.

It represents a long term source of financing. In between the common stock and long term debt, it holds an intermediate position regarding claim on assets and dividend payment. One of the thing that should be noted is that nonpayment of preference dividends does not force the company into bankruptcy and dividend is paid out of after-tax profit.

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