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What is the benefit of holding a preferred non-participating stock?

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Final answer:

Holding preferred non-participating stock provides preferential treatment in dividend payments with a stable income and a lower risk investment, appealing to conservative investors looking for steady earnings and priority over common shareholders.

Step-by-step explanation:

The benefit of holding a preferred non-participating stock is primarily the preferential treatment in dividend payments. Preferred stockholders are typically guaranteed a fixed dividend that must be paid before dividends are issued to common shareholders. Moreover, preferred stocks often come with a higher dividend rate compared to common stocks, providing a stable income stream. However, 'non-participating' indicates that these stockholders do not share in the additional earnings of the company beyond the fixed dividend.

Issuing stocks allows a company to raise capital to fund expansion and increase its visibility in the financial markets without the obligation to repay the capital like a loan. It does come with requirements such as compliance with the Securities and Exchange Commission (SEC), and necessitates the expertise of investment bankers and attorneys. For investors, the advantage of preferred non-participating stock is a generally lower risk investment compared to common stock, often making it an attractive option for conservative investors seeking a steady income with priority over common shareholders in dividend payments and assets in the event of company liquidation.

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