Prior Preferred Stock

A type of preferred stock with a higher claim on assets and dividends than other issues of preferred stock. If a firm did not generate enough money to fulfill all of its dividend schedule requirements, those holding prior preferred stocks have first priority.

Since prior preferred stock holders have a higher claim on the dividends of a company during normal operations and a higher claim on assets during bankruptcy, these shareholders are subject to less risk than other preferred or common shareholders. As with many other lower risk investments, these stocks normally offer a lower rate of return relative to other forms of stock because they are subject to less risk.