Question

What I would like to learn more about is what cases would call for common stock to be paid before preferred stock or vise versa. Is it ever a point neither gets paid? How often is it that they both get paid? What happens when common stock does not get paid? They just lose out on their money?

Please provide me with a good thoughfu answer.. Thank you

Answer 1

The preferred stock gets paid before the common stock. The comon stock never gets paid before the preferred stock. If the firm has surplus, first the payouts will be made to the preference share holders and just in case there is anything left over the payments are made to the common share holders. If the firm has surplus , then payments are made to both. During time sof insolvency this claim is most crucial, when the preference shareholders have to be paid before the common stock holders.Although they do not ahve voting rights, but they ahve a higehr claim on ownership over the company's assets. Dividends are also paid to preference share holders before the common share holders.

The common shareholders are last because they have residual claim on the earnings. yes they will simply lose out on the money if not paid.

Preferred stock holders are the first ones's to claim over the assets and earnings of the company.