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It's pretty much the principle of dividends. With prefered shares you can even define the conditions of dividends, index them on the company's income.
by proemeth 17y ago
It's pretty much the principle of dividends. With prefered shares you can even define the conditions of dividends, index them on the company's income.
- bwd2 17y agoTo expand on this a bit more for the uninitiated, preferred shares are a more sophisticated version of what he's talking about. They basically work like debt that doesn't blow up the company if you can't make your payments. They tend to be junior to debt and senior to common stock if there is a liquidation, there is a secondary market on public exchanges, and there are many variants such as preferred shares that pay higher dividends in years with good earnings or that can be converted into common shares on terms similar to convertible bonds. This is already a well solved problem, but the solution isn't very sexy, so it's not as well known as debt and common stock.