Why is preferred stock referred to as a hybrid security?

It is often said to combine the worst features of common stock and bonds.

What is meant by this statement?

How does a common stockholder receive two types of returns?

Expert Solution

Q1. Preference stocks are referred to as hybrid security because it contains both the features of equity and debt.

preference shareholders have a preferential right over the dividend unpaid to them over common shareholders.

However, preference shareholders have rights only after the bondholders are paid.

That is preference shareholders have the primary right over the dividend. Preference shareholders have a fixed amount of dividend, pre-fixed at the time of issue of preference shares.

That's why preferred stocks are in between equity and debt securities.

Q2. Preference shares is a combination of Good features of debt and equity. The statement above is incorrect.

It shares the common feature of a fixed amount of dividend, pre-fixed at the time of issue of preference shares from the bond &

Getting Dividend instead of Interest, Being under shareholder of the company like the Common stock.

Q3. Common stockholder receive two types of return in form of:

1. Capital gain or appreciation.

2. Dividend income.

jeff jeffy answered 3 years ago

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