- Preferred stock has traits that are similar to corporate bonds and traditional common stock. Like a corporate bond, preferred stock provides a steady return to the owner in the form of a dividend that is typically higher than that offered by traditional common stock. Typically, the preferred stock dividend must be paid before the company may award dividends to common stockholders. However, like traditional common stock, preferred stock represents an ownership stake in a company.
- Preferred stockholders have a superior claim to a company's assets in cases of bankruptcy or liquidation relative to the claims of common stockholders. However, bondholders have a superior claim to preferred stockholders in cases of bankruptcy or liquidation.
- Typically, preferred shareholders do not have voting rights on corporate matters. Voting rights are normally available only to holders of common stock.
- Preferred shares in a company can be purchased on major stock exchanges. Alternatively, investors also can purchase bundles of preferred shares from multiple companies by investing in exchange traded funds or mutual funds that invest in preferred shares.
- In some cases, an investor in preferred stock may have the option to convert the preferred shares into common stock shares. Typically, the number of common shares that can be acquired by the conversion of preferred shares is defined before the investor acquires the preferred shares.
