Preferred stock is considered as a special type of security among the analysts

because of its features. As we all know,

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On the other hand, technically, they are treated as equity securities but they could also be debt
instruments .

"fixed-income security" that offers consistent dividend payments without lengthy maturity dates
of bonds or
the market fluctutation of common stocks.These payments can be postponed by the company if
it falls into a
period of financial hardships. In fact, this feature offers a maximum flexibility to the company
without the fear
of missing a debt dividend payment which failure to pay the preferred stock does not concur
implications as defaulting
on a debt payment.

Other types of preferred stock can give owners the right to trade shares of preferred stocks for a
certain number
of common shares which actually depends on the price movements in the market

Features of Preferred Shares

Preferred shares have a special combination of features that differentiate them from debt or
common equity. Although the terms may vary, the following features are common:
Preference in assets upon liquidation: The shares provide its holders with priority over common
stock holders to claim the company’s assets upon liquidation.
Dividend payments: The shares provide dividend payments to shareholders. The payments can
be fixed or floating, based on the interest rate benchmark such as LIBOR.
Preference in dividends: Preferred shareholders have a priority in dividend payments over the
holders of the common stock.
Non-voting: Generally, the shares do not assign voting rights to its holders. However, some
preferred shares allow its holders to vote on extraordinary events.
Convertibility to common stock: Preferred shares may be converted to a predetermined number
of common shares. Some preferred shares specify the date at which the shares can be
converted, while others require the approval from the board of directors for the conversion.
Callability: The shares can be repurchased by the issuer at specified dates

Advantages of Preferred Shares

Preferred shares offer advantages to both issuers and holders of the securities. The issuers
may benefit in the following way:
No dilution of control: This type of financing allows issuers to avoid or defer the dilution of
control, as the shares do not provide voting rights or limit these rights.
No obligation for dividends: The shares do not force issuers to pay dividends to shareholders.
For example, if the company does not have enough funds to pay dividends, it may just defer the
payment.
Flexibility of terms: The company’s management enjoys the flexibility to set up almost any terms
for preferred shares.
Preferred shares can also be an attractive alternative for investors. The investors may benefit in
the following way:
Secured position in case of the company’s liquidation: Investors with preferred stock are in a
more secure position relative to common shareholders in the event of liquidation, because they
have a priority in claiming the company’s assets.
Fixed income: Most preferred shares provide their shareholders with a fixed income in the form
of dividend payments.

Market price of stocks vary from the true equilibrium price because of

The equilibrium price and equilibrium quantity occur where the supply and demand curves
cross.
The equilibrium occurs where the quantity demanded is equal to the quantity supplied.
If the price is below the equilibrium level, then the quantity demanded will exceed the quantity
supplied.
Excess demand or a shortage will exist. If the price is above the equilibrium level,
then the quantity supplied will exceed the quantity demanded. Excess supply or a surplus will
exist.
In either case, economic pressures will push the price toward the equilibrium level.