Question on Reading 49 (Equity Securities)

All the above is correct, but it should probably be qualified by saying that it’s only true to the extent of the curriculum and common practice. Preference shares with different terms (eg percentage of profit distributed, etc) also exist.

@beancounter of course.

hey @edulima!

As far as I know, preferred stock typically pays out a fixed and preferred (i.e. they get paid before common shareholders) dividend, so they’re not tied to the performance of the company (i.e. even if the company doesn’t perform according to expectations the dividend to preferred shareholders is still the same.

Dividends to common shareholders will obviously be based on performance hence they ‘share in the operating performance of the company’.

Preferred stock is very similar to being a bondholder: fixed dividends, higher up the creditor’s list compared to common shareholders, no voting rights.

Hope that helps!

Yeah it mainly means the common shareholders dividend depends upon the operating profit (performance) whereas preference shareholders dividends are independent of the net profit/performance.

No problem @edulima! 😉