What Is Preferred Stock?
Preferred stock is a kind of share that pays a fixed dividend and gets paid before common stock. It sits between a bond and a normal share.
How preferred stock works
A preferred share might pay $1.50 a year, no matter how well the company does. The company must pay preferred owners before it can pay any dividend to common owners.
Why people buy it
For steady income. Preferred stock often pays higher dividends than common stock, and its price usually swings less. Banks and utilities often issue it.
The downsides
- You usually get no vote.
- The dividend does not grow when the company grows.
- Like bonds, prices fall when interest rates rise.
- Many can be bought back by the company at a set price, which caps your gain.
See it in real companies
Open a company to see what it sells and how it makes money.