Zero-Dividend Preferred Stock

Zero dividend preferred stocks sound kinda hypocritical. How can a stock be preferred when it gets you zero dividends? Gather 'round to hear the tale.

First: preferred stock. On its own, this usually is taken to mean that whoever buys preferred stock is guaranteed a fixed dividend, which takes priority over commonplace share dividends. It’s like flying business class for dividend-yielding stocks.

So...what about zero dividend preferred stocks? They’re also known as “capital shares,” and yes, it means that a dividend is not guaranteed. However, it does mean that they’ll earn income from capital appreciation, which is money made from an increase in price or value of company assets. It also usually means that these stockholders will get preferred treatment over normie stockholders if the company goes bankrupt. In some cases, zero dividend preferred stockholders may get a one-time payment when they cash out at the end of their investment term.

Makes you think about what “preferred” means besides the usual "gets dividends" definition. Just like flying business class can mean different things on different airlines. Do you put that hot towel on your hands, or your face? What if it was down some sweaty guy’s pants last? What does “preferred” really mean?