Preferred stock is a type of stock that pays a fixed dividend and typically has priority over common stock for dividend payments and asset distribution in case of liquidation.
In Depth
Preferred stock is a hybrid security, sharing characteristics of both stocks and bonds. It usually pays a fixed dividend, similar to a bond's interest payments, and these dividends must be paid to preferred shareholders before common shareholders receive anything. While preferred stockholders typically don't have voting rights, they have a higher claim on a company's assets than common stockholders if the company is liquidated. This can make them a less risky investment than common stock, but also limits their potential for capital appreciation.
Example
An investor might choose preferred stock for its steady dividend income, even though it means giving up voting rights in the company.