Favorite stocks or favored shares are different from most common stocks. They usually do not have voting rights on matters of corporate guidelines, their dividends are fixed and favored dividends will be paid previous to common share dividends.
Generally, there are 4 different types of favored stock: participating favored stocks, increasing favored stocks, non cumulative favored stocks, and convertible favored stocks.
1) Contributing favored stock: This gives stockholders the right to get a particular dividend plus the right to extra earnings based on some fixed condition.
2) Accumulative favored stock: This gives stockholder the right to build up dividend that is not paid. The unpaid amounts will be paid in future when there are enough profits generated.
3) Non-cumulative favored stock: This type of stock does not give shareholders the right to collect dividends that were omitted before.
4) Convertible favored stock: This type of stock can be converted into shares of common stock at the shareholder’s option. The price of the conversion is fixed price, and such conversion can be made at any time.
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