What you can own
Preferred stock
Also called Preference shares
Shares that rank ahead of common stock for dividends, usually without voting rights.
How it works
Preferreds pay a fixed or floating dividend that must be satisfied before common shareholders receive anything, and they rank ahead of common stock if the company is wound up.
They behave like a hybrid: more bond-like in their income and sensitivity to interest rates, more equity-like in their position behind all genuine debt.
Where it misleads people
Preferreds usually have no upside participation. If the business triples in value, the preferred still pays its fixed dividend, so you carry a large share of the downside and little of the upside.
Related terms
- Common stockThe standard form of share ownership, carrying votes and a residual claim on profits.
- BondA loan you make to a government or company, which pays you interest and returns your money on a set date.
- Capital structureThe ranking of everyone who funded a company, deciding who gets paid first if it fails.
- DividendA cash payment a company makes to its shareholders out of its profits.
More in What you can own
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Educational reference only. Nothing here is investment advice or a recommendation to buy or sell anything, and tax treatment depends on your own circumstances and the country you are in.