Preferred Stock
Stock that receives dividends first and in a set amount, but usually carries no voting rights — it sits between stocks and bonds in character.
Preferred stock = comes "before" common stock in dividends and distribution of remaining assets, but usually has no voting rights
If you want steady dividends, preferred stock fits; if you want the upside of company growth and voting rights, common stock fits (it's less about which is better and more about different purposes).
In plain terms
There are two kinds of stock. The one we usually buy is common stock, and preferred stock is stock that "receives dividends first and in a set amount, but cannot take part in company votes."
Preferred stock pays dividends that are relatively steady, which gives it a bond-like side, and it's still stock — so it's called "halfway between a stock and a bond." If the company goes under, preferred holders are also ahead of common holders in getting money back (but behind bondholders).
What it tells you
Preferred stock suits investors who want steady dividends rather than growth. In exchange, even if the company grows a lot, preferred holders often don't share in that upside as much as common holders.
For the company, preferred stock is a way to raise money without it counting as debt, so when looking at capital structure, it's worth checking whether preferred stock exists.
Formula
Preferred stock = comes "before" common stock in dividends and distribution of remaining assets, but usually has no voting rights (Common stock = has voting rights, dividends come later, benefits from growth)
What high or low means
If you want steady dividends, preferred stock fits; if you want the upside of company growth and voting rights, common stock fits (it's less about which is better and more about different purposes).
When interest rates rise, preferred stock — which pays a set dividend — tends to lose appeal like bonds do, and its price tends to be pressured.
"Preferred is ahead of common, so it must be better" is a misunderstanding. It only comes first in dividends and liquidation order; it has no voting rights and less exposure to growth. The purposes differ — it isn't a ranking.
Preferred stock comes with different terms for each series (dividend rate, whether it's convertible, whether it's redeemable). So even with the same name, they're closer to being different products.
Preferred stock works somewhat differently across markets. U.S. preferred stock is often closer to a bond, so judging it only by another market's conventions can be misleading.
During the 2008 financial crisis, when even Goldman Sachs was shaken, Warren Buffett invested 5 billion dollars — not in common stock, but in "preferred stock." The terms included a hefty fixed dividend of 10% a year, plus the right to later convert into common stock at a set price.
It was a clever use of the fact that, when a company is in trouble, preferred stock receives dividends first and in a set amount, and also ranks ahead in liquidation. Through this deal, Buffett secured both steady dividends and a large gain. It's a good example of why preferred stock sits "halfway between a stock and a bond."
Metrics to read alongside
See it in real stocks
Search US stocks on Stocklore to see SEC-filing-based financial metrics alongside the sector benchmark.
This explanation is for information and reference only and is not a recommendation to buy or sell any security. Investment decisions and their consequences are your own.