A stock which has a claim upon the property and earnings of a corporation prior to some other stock; that is, it comes after the bonds and floating debt, if any, but ranks ahead of what is known as "common stock." When a "preferred stock" is created, it naturally follows that it precedes another issue, called "common stock." The first mentioned stock is about what its name indicates, -it has preference over the common. The form of this preference differs in various corporations, but, as a rule, in case of the winding up of the corporation, the preferred stockholders have the right to be paid out of the assets before the common stockholders receive anything. The conditions as to the payment of dividends on "preferred stocks" also vary. In some cases, a dividend must be paid if earned; in other cases, it must be paid before any dividend upon the " common stock." It may be "cumulative" (see "Cumulative") or, after the common stock has received an equal amount, both may share alike and so on. The most common way, however, is to give the "preferred stock " the first claim upon dividends up to a certain per cent. The best example of this is in the case of the United Shoe Machinery Corporation preferred stock, which is entitled to receive 6% per annum before the common receives any. In this case, the earnings of the company are so large that the common stock, in actual practice, receives a higher rate of dividend than the " preferred," and sells in the market at a higher price. Most common stocks, however, sell at a lesser price than the preferred.
There are numerous cases of " first" and " second preferred" issues, the nature of their preference being somewhat different from each other, but both have preference over the common shares. Sometimes "class A and "class B" preferred stocks are issued, being simply another nomenclature for "first" and "second preferred."
Preferred shareholders, usually, but not always, have the right to vote at stockholders' meetings. In some instances the voting right per share is greater on the preferred than upon the common stock.