Why are Preferred Shares called ¡§preferred¡¨?

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Why are Preferred Shares called ¡§preferred¡¨?
Explain why some portfolio managers consider them more like a fixed income product than an equity security.
Describe a situation wherein an investor in preferred shares might enjoy capital appreciation from his/her investments.



Why are Preferred Shares called ¡§preferred¡¨?


Preferred shares are called ¡¥preferred¡¦ because they give preferential treatment to the shareholder with regards to dividend payouts and asset allocation priority in the event of the company¡¦s dissolution. These characteristics are known as the preference as to assets, and the preference as to dividends clauses built into every preferred share. Secondly, I would also imagine that this name was given to the product, because of the advantageous position the company sometimes takes when they issue these shares, thus making the company prefer to issue these shares over bonds and sometimes common shares.
Unlike bonds, the compa...