What is a Preferred Stock?

Preferred stock is a special class of stock different from the usual common stock. It is like a combination of common stock and a bond. Preferred stock usually comes with an established dividend that is guaranteed to be paid before the common stock dividend. They are traded on the stock exchanges and their prices may fluctuate, but many investors look upon them as a fixed interest investment, paying out a certain percentage annually.

In addition, the owners of preferred stocks are given preference if the company is ever liquidated. They are paid off before owners of common stock, but after owners of the company’s bonds. Preferred stocks are often convertible into common stocks, but are callable at the option of the company. They are usually non-voting shares.