Advantages and Disadvantages of Preferred Stock
Advantages include:
- Its existence increases the firm's financial leverage
- It is more flexible than debt when it comes to missing an annual payment
- It is useful for corporate restructuring
Disadvantages include:
- Its senior status to common stockholders jeopardizes common stockholders' returns
- Its cost is generally greater than that of debt financing
- It is sometimes difficult to sell since dividends can be passed (unpaid) and returns are generally fixed