Question: What is the difference between "preferred stock dividends" and "dividends declared and paid on common stock?"?
I'm trying to calculate the EPS of a problem (accounting class) and I don't know the difference between those two.
Thanks!
Answer:
preferred stock are closer to a bond where you are a debt lender. You don't have voting rights as a share holder, but you do get higher dividends for the investment. Your risk is the same as any share holder, you just are treated more as a lender than a share holder by the company. For accounting, you would not be a equity owner, but a liability. common stock holders are equity owners or shareholder equity and do have voting rights.
The term dividend, when used alone with no adjectives, implies a cash dividend. However, there are some dividends that are not paid with cash but instead involve payment with additional shares of stock.
These dividends, called stock dividends, are distributions of additional shares of a corporation's stock to its stockholders on a pro rata basis at no cost to the stockholder.
The phrase pro rata basis means that each stockholder receives additional shares equal to the percentage of shares held.
A stockholder with 10 percent of the outstanding shares would receive 10 percent of any additional shares issued as a stock dividend.
A stock dividends is a distribution of additional shares of a corporation's own stock.
The value of a stock dividend is the subject of much debate. In reality, a stock dividend by itself has no economic value.
All stockholders receive a pro rata distribution of shares, which means that each stockholder owns exactly the same proportion of the company after a stock dividend as he or she did before the dividend.
If you get change for a dollar, you do not have more wealth because you hold four quarters instead of only one dollar.
Similarly, if you own 10 percent of a company, you are not wealthier simply because the company declares a stock dividend and gives you (and all other stockholders) more shares of stock.