Question

Preferred stock is a "hybrid" security. Preferreds typically pay a fixed dividend, so they are a fixed-income security like a bond. However, the directors can omit the preferred dividend without throwing the company into bankruptcy. True or false

Answer 1

Answer:

The correct answer is True.

Explanation:

The preferred share is one that confers on its owner an additional privilege, generally of an economic nature, compared to what we commonly call common shares.

As for ordinary shareholders, preferred shares do not expire, but nevertheless, unlike ordinary shares, they do not legitimize their holder the right to vote at general or extraordinary meetings of shareholders, and they do not attribute any equity participation of the society. Likewise, the profitability of preferred shares is also not guaranteed, since it is linked to obtaining benefits.

Answer 2

Answer:

TRUE

Explanation:

It is true that Preferred stocks are typically pay a fixed dividend, so they are a fixed-income security like a bond; and also true that the directors can omit the preferred dividend without throwing the company into bankruptcy because a business may elect to forgo payment of dividends.

However, preferred stock dividends in arrears are legal obligations and must be paid to preferred shareholders before any common stock shareholder receives any dividend.  

All previously omitted dividends must be paid before any current year dividends may be paid.