Definition of Preferred Stock

Preferred stock is an investment in a company from which fixed interest payments are paid. These investments are unlike regular (common) stock in such ways as dividend payments, voting rights and price. Preferred stock is also influenced by different market factors than common stock.

Definition of Stock

A share of stock represents ownership of a small piece of a company.

Preferred Stock

Preferred stock pays a fixed dividend for as long as the stock is held. It does not afford the owner any voting rights. Most gains on preferred stock are realized through these dividend payments as opposed to price appreciation.

Guaranteed Payments

Dividends are guaranteed by the issuing company. Though the company is able to temporarily suspend dividend payments, it must pay all missed dividends before any new ones are declared.

Types

Convertible preferred stock can be exchanged for common stock shares of the company, usually with certain stipulations. Straight preferred stock cannot be exchanged and retains its original terms for the life of the stock.

Price

Prices of preferred stock are more influenced by interest rates than the stock market. As interest rates go up, the prices of these bonds go down; conversely, if interest rates lower, the prices will subsequently rise.