The Richmond Virginian. (Richmond, Va.) 1910-1920, 1920-02-23

profit are greater, the owners of pre-
ferred stock must content themselves,
ordinarily, with dividends OF five, six.
Or seven per cent depending, of course.
upon the state of the investment mar
ket at the time the shares are issued.
Common shareholders on the other
hand. may receive no income at all
from their investment in poor years.
and very high rates in prosperous
years.
The paying OF dividends on pre-
ferred stock may be subject to other
limitations and conditions. They may
be either cumulative. or non-cumula-
tive. In the event OF a very poor year
in which the corporation did not earn
sufficient to pay more than its operat-
ing expenses, dividend. payments on
preferred stock might necessarily be
passed ''--remain unpaid. IL the
stock were cumulative. such passed"
dividends would be paid oIt of the
, earnings of the first prosperous year,
before any payment Were made on
the common stock. If on the other
hand the preferred stock were nom
cumulative. the passed due dividends
/ would not be made up. and the dis
! tribution of PROFITS would be made to
/ both common and preferred stock
/ holders without regard for the
, omitted dividends.
Some preferred stock does not carry
with 1t any voting power, the theory in
such cases being that insomuch as the
! holders of common stock are carrying
nearly all the risk Of the business. the
direction of its affairs should be re-
served to them. II. however. their
conduct of the business is inefficient
and does not result in a period OF
years in any profits for division. then
in many cases, the preferred stock.
! holders have the right to step in and
vote their shares. and so secure a
voice in the control of the corporation
| These are the normal and funda-
mental features of preferred stock as
}enncscd to common stock. Variations
are dictated by special circumstances
II sometimes happens. as we have
seen. that there are two or more
classes of preferred stock. In thi:
event the holders of Glass 4 wouic
take precedence over Class r., as vel
as over the holders of common stock
in the distribution of profits. Clas.
r would have the usual preference
over the owners of common stock
Another provision, sometimes found II
the case Of railroad issues. is tina
when the earnings are more thai
enough to provide a dividend pay
nent on common stock at a certain
rate, fixed in advance, then the sur
plus shall be shared between botl
GLASSES of owners, Finally, the pro
vision is frequently made, particu
larly when il is expected that the bust
ness will be profitable. that preferret
stock shall be redeemable by the issu
ing corporation at a figure agreet
upon at the time of its issue. Thi
figure may he par, though il is usual.
above that figure. with the preferres
stock redeemed, the whole earning
may go back into the business as sur
plus or he paid out TO The commo,
stock holders as dividends.
Holders of both preferred and com
mon stock in a corporation are it
owners, and bear the risks of owner
ship. Their rights in the event o
liquidation or other development
which threatens the property ar
secondary to those OF bondholder
who are not owners. but creditor
whose claims must be paid before tn
stockholders. who own the property
can receive their share Of the pric
for which it may be sold.
The preferred stock or establishe,
companies having ample earning
over a period OF years; and a goo
dividend record, and resources ade
!quate for liauidating the preferre
stock in fun, can frequently be classe
fas investment securities.
.