Multiple types of Preferred Stocks

Many companies have only one type of common stocks, but it is very common to see companies with more with more than a series of preferred stocks. Each class of preferred stocks has a different characteristic. For example, Citigroup’s preferred F series pays a dividend of $3.18 per share, with a yield of 5.9% at a closing price of $53.75 per share, and was up $0.25 from the preceding day’s closing price.

Citigroup has several cumulative preferred stock issues, which give holders the right to receive all missed dividend payments before common shareholders are paid.

Convertible preferred stocks can be converted by holders into a fixed number of shares of common stocks of the underlying company. A call provision gives the issuing company the right to call the preferred stocks at a specific price (normally a premium over its par value).

These issues also might be differentiated in their priority status with regard to claims on assets in the event of bankruptcy.

Claim on income and assets: Preferred stocks have preference over common stocks when the distribution of  incomes and assets is in discussion. Companies are forced to pay dividends to preferred stocks before common stockholders.

In case of bankruptcy, claims coming from preferred stockholders have priority over those coming from common stockholders. This makes preferred stocks are less risky than common stocks, but riskier than bonds. This is like this because bondholders have priority in claims over incomes and assets than preferred stockholders.

Companies must pay the interests over their debts because in case of insolvency, bondholders can force the insolvent corporation to go bankrupt, while preferred stocks and common stocks dividends are only declared when the Board of Directors deem convenient. In case of multiple types of preferred stock, the different issues are prioritized in case of claims over incomes and assets.