What Is A Preferred Stock?

Preferred stocks are securities with characteristics of both stocks and bonds. Like a bond, preferred stock has a fixed dividend that it will pay to owners each year. Also like a bond, preferred stock owners do not have the ability to vote on the management of a company. Lastly, because preferred stocks pay a fixed dividend, the value of a preferred share fluctuates more from changes in interest rates than from the actual performance of the company that issued the stock.

However, preferred stocks do not have a maturity date like bonds. Additionally, if a company fails to pay a dividend on its preferred stock, it does not mean the company is bankrupt like the failure to repay a bond would indicate. A company can chose to skip a dividend payment on its preferred shares, but all unpaid dividends on preferred stock must be paid prior to payment of common stock dividends. In this way, preferred stock owners always receive dividend payments before common stock shareholders.

About the author

Lon Jefferies, CFP®, MBA

Lon Jefferies is an investment advisor representative with Net Worth Advisory Group, a fee-only financial planning firm in Salt Lake City, Utah. He is a Certified Financial Planner (CFP®) and a member of the National Association of Personal Financial Advisors (NAPFA). He possesses an MBA and bachelor's degrees in Finance and Marketing from the University of Utah. Lon writes articles for local magazines such as Utah CEO, Business Connect and Utah Business Magazine, and he consistently contributes articles to online magazines such as FIGuide.com and FILife.com (by The Wall Street Journal). Additionally, Lon is an expert author at EzineArticles.com. Lon has been quoted nationally in publications such as the NY Times and Investment News.

Lon can be contacted at (801) 566-0740 or lon@networthadvice.com. Learn more about Net Worth Advisory Group at http://networthadvice.com and visit Lon's blog at http://www.utahfinancialadvisor.blogspot.com.

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