Listen to a Business English Dialogue About Prior preferred stock preferred stock
Ella: Hi Stephen, have you heard about prior preferred stock in finance? I’ve seen the term, but I’m not entirely sure what it means.
Stephen: Hey Ella, prior preferred stock, also known as “cumulative preferred stock,” refers to a type of preferred stock that has a priority claim over common stock in receiving dividends and assets in the event of liquidation. It means that dividends on this stock must be paid before dividends on any other class of stock.
Ella: Oh, I see. How does prior preferred stock differ from other types of preferred stock?
Stephen: Prior preferred stock differs from other types of preferred stock, such as non-cumulative preferred stock, in that it accumulates unpaid dividends if they are not paid in a given period. This means that if dividends are not paid in one period, they must be paid in a future period before any dividends can be paid to other shareholders.
Ella: That makes sense. Can you give me an example of when a company might issue prior preferred stock?
Stephen: Sure, Ella. A company might issue prior preferred stock if it wants to raise capital without diluting existing shareholders’ ownership or voting rights. Investors may be attracted to prior preferred stock because of its priority claim on dividends and assets, providing them with a more secure investment compared to common stock.
Ella: Got it. How do investors assess the risks and returns associated with prior preferred stock?
Stephen: Investors assess the risks and returns associated with prior preferred stock by considering factors such as the issuer’s financial stability, dividend payment history, and the terms of the preferred stock offering. They may also evaluate the company’s ability to generate sufficient cash flow to meet its dividend obligations to preferred shareholders.
Ella: Thanks for explaining, Stephen. It’s helpful to understand how prior preferred stock works and its implications for investors and companies.
Stephen: You’re welcome, Ella. Prior preferred stock can be an attractive investment option for investors seeking a balance of income and security in their portfolios. If you have any more questions, feel free to ask!