Preferred Stock
Equity with a fixed dividend and priority over common, usually without votes.
What is Preferred Stock?
A hybrid: legally equity, economically closer to a bond. Preferred pays a stated dividend, ranks ahead of common for dividends and in liquidation, and typically carries no voting rights. Prices move mostly with interest rates rather than with earnings.
Preferred Stock: a worked example
A $25 par preferred paying 6% pays $1.50 a year; if rates rise, its market price falls like a bond's.
What is the difference between Preferred Stock and Common Stock?
Common = votes, variable dividend, unlimited upside. Preferred = no votes, fixed dividend, priority, bond-like behavior.
Often confused with Common Stock - see Preferred Stock vs Common Stock side by side.
More terms in Securities & Instruments
Common Stock
An ownership share in a company, with voting rights and last claim on assets.
Bond
A loan to an issuer that pays interest and returns principal at maturity.
Coupon Rate
The bond's stated annual interest as a percentage of par.
Yield to Maturity (YTM)
The total annualized return if you buy today and hold to maturity.
Par Value (Face Value)
The principal repaid at maturity, conventionally $1,000 per bond.
Duration
A bond's price sensitivity to a 1% change in interest rates.
Credit Rating
An agency's assessment of an issuer's likelihood of default.
High-Yield (Junk) Bond
A below-investment-grade bond paying more to compensate for default risk.