What Are Preferred Stocks?
Preferred stock is the term for a hybrid investment vehicle. This is part stock and part debt instrument. Preferred stock can also be called preferred shares. This type of investment is ranked higher than common stock but lower than bonds.
Owners of preferred stock are not allowed to vote like common stock holders but will usually be paid a dividend. They also carry first rights to liquidation proceedings and bankruptcy. Often, preferred stock will have a convertibility feature, allowing the owner to convert into common shares. To find out out preferred shares, read the “Certificate of Designation” to company puts out.
Preferred stocks are similar to bonds as they are rated by a major credit rating agency. Preferred stocks are generally acceptable to a wider range of investor and are thought to be a safer vehicle than common stocks.
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