Preferred Stock
A hybrid share class with fixed dividends and liquidation priority over common stockholders, but usually no voting rights.
Preferred stock sits between bonds and common equity in a company's capital structure. Preferred shareholders receive a fixed dividend before any common dividend is paid, and they rank ahead of common shareholders if the company is liquidated.
In exchange for that priority, preferred shares typically carry no voting rights. Some preferreds are cumulative — missed dividends accumulate and must be paid before common dividends resume — while others are convertible into common shares at a set ratio.
Institutional investors and income-focused portfolios favor preferreds for their bond-like income with equity-side upside from conversion features.
Related Terms
Common Stock
The standard class of share that gives holders voting rights and variable dividends. Most publicly traded shares are common stock.
BeginnerDividend
A cash (or stock) payment a company makes to shareholders from its profits, typically on a quarterly schedule.
BeginnerIPO
The first time a private company sells shares to the public on a stock exchange, raising capital and creating a tradable market for the stock.
IntermediateShare
One indivisible unit of ownership in a company. Your ownership percentage equals your shares divided by total shares outstanding.
Beginner