Are Treasury Stocks the Same as Preferred Stocks?

No, treasury stocks are not the same as preferred stocks. Preferred stocks are securities issued by a corporation to raise money. Treasury stock refers to common stock that a corporation issued and subsequently bought back.

A corporate charter stipulates the maximum number of shares, or authorized stock, that a corporation can issue. Corporations rarely issue all the authorized stock at once. They start by selling a percentage in an initial public offering, known as an IPO, and then sell more stock periodically in secondary offerings to raise capital as needed. The stock thus issued and in the hands of investors is called "outstanding."

Treasury stock is the stock that a corporation issued and subsequently bought back in the open market. A corporation can hold the treasury stock, retire it or reissue it, for example, to fund employee stock options.

Corporations buy back their own stock when they deem it to be the best way to use corporate cash to enhance shareholder value. Investors evaluate corporate earnings growth on a per-share basis. When a corporation buys back its own stock, it reduces the number of shares outstanding so earnings per share increase, making the stock more valuable and more likely to go up.

Preferred stock is a cross between common stocks and bonds based on the features and benefits it carries. Corporations issue preferred stock in addition to common stock to raise capital.

Common stocks are perpetual securities, so a corporation can hold treasury stock indefinitely. Preferred stocks are issued with a call provision, meaning that the corporation has the right to call, or redeem them, at par, or face value. Once redeemed, preferred stocks cease to exist, just like matured bonds.