Stocks & Shares - Preferred Stock

Type Of Securities  - Preferred Stock

Preferred stock is similar to the common stock, usually without voting rights, who offers a limited risk but limited profit to the shareholder. It represents some degree of ownership in a company but typically doesn't come with the same voting rights. With preferred stock investors are usually guaranteed a fixed dividend forever. This is different than common stock, which has variable dividends that are affected by the market and never guaranteed. 

Due to this nature of the preferred stock, some people consider preferred stock to be more like debt than equity. When you buy a preferred stock, you know in advance what is the amount of the dividend you will get, and the company pay dividend to you before thay pay to the common shareholders. On the other hand, the amount of dividend you get is the same even if the company had much larger profit that year. 

Another benefit of investing into preferred stock is that in the event of liquidation preferred shareholders are paid off before the common shareholder. This means that when the company must liquidates and pays all the creditors, common stockholders will not receive any money until after the preferred shareholders are paid out. 

Preferred stock may also be callable, meaning that the company has the option to buy back the shares from shareholders at anytime for any reason. Investing into this type of stock gives investor a greater claim to a company's assets and earnings. 

Also, prices of preferred stocks tend to have lower volatility od common stocks and that means a lower overall risk.