Preferred Stock

Preferred stock is an investment type issued by companies that has both stock-like and bond-like characteristics.

The benefit of preferred stock is its dividend priority. Preferred stockholders are the first to receive dividends, which isn’t always guaranteed to common stockholders (most stock investors). Preferred stock can be converted to common stock, but not vice versa. Another benefit is that this income source is distributed on a regular basis, similar to coupon payments from bonds.

However, preferred stock has a few disadvantages. Unlike common stock, preferred stockholders don’t have voting rights, so they can’t vote on corporate actions or the election of a corporate board member. These investments also don’t generate returns if the stock’s price increases, unlike common stock. Preferred stockholders rank higher than common stockholders if the company liquidates, but they’re outranked by bondholders.