Lesson: Basics of Preferred Stock

In this lesson, Nick Palazzolo, CPA, unpacks the intricacies of preferred stock, a unique financial instrument that blends characteristics of both debt and equity. He clarifies the common misconceptions about preferred stock, emphasizing its debt-like fixed dividend payments and priority over common stock in asset distribution during liquidation. This session explores various attributes of preferred stock, including the potential for conversion to common stock, lack of voting rights, and how these features compare to common equity and debt instruments. Using relatable examples, such as Warren Buffett's investment strategies, Nick illustrates the circumstances under which preferred stocks can be a valuable financial tool and sheds light on their impact on a company's capital structure. Dive into the specifics of preferred stock, including tax implications and the nuances of fixed versus variable costs associated with different types of securities.