From an investor's viewpoint, are dividends expected to be paid on preferred stock riskier than dividends...

From an investor's viewpoint, are dividends expected to be paid on preferred stock riskier than dividends expected to be paid on common stock, all other things equal?

Expert Solution

Dividends which are expected to be paid on preferred stock are are not riskier because preference dividend are mostly secured in nature as whether the company is making the profit or the loss, these Dividends are to be paid by the company as they are preferred dividends, whereas payment of dividends to common stock are not mandatory for the company because stock are representing the ownership of the company and they are not entitled to receive the dividend whereas the preference shareholders will be entitled to receive the dividend.

Preference shareholder is a hybrid mix of equity and debt so These Dividend are generally mandatory payments because they are mostly Cumulative dividend and they have to be paid by the company under any circumstances even if company is making loss by accumulating to the next year, so these preference dividend are less risky than the equity dividend because Equity dividend are not mandatory payments for the company.

So, it can be summarised that dividend which are expected to be paid on preferred stocks are not riskier than equity dividend.

jeff jeffy answered 2 years ago

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