Preferred Stock, Explained

Like common stock, shares of preferred stock represent partial ownership of a company. Preferred stock isn't really meant for individual investors, though. It's usually purchased by other corporations; they're lured by a fixed dividend that's higher than the common-stock dividend, which gives them income that's taxed at a lower rate.

Corporations also like that claims on company earnings and assets by holders of preferred stock have a higher priority than those of investors who hold common stock. If the Two-Legged Chair Co. (Ticker: OOOPS) goes out of business, many people or firms with claims on the company will want their due. Creditors will be paid before preferred stockholders are, but preferred stockholders have a higher priority than common stockholders.

Unlike holders of regular common stock, holders of preferred stock typically have no voting privileges. Preferred stock also tends to not appreciate in value as much as common stock can. We've generally avoided investing in preferred stock, but some investors might be interested in such shares for the dividends. Learn more in this article on the power of preferred stock.

To learn more about investing Foolishly and how the business world works, visit our Fool's School and our Investing Basics area. Or check out some of our inexpensive and well-regarded online how-to guides, which come with money-back guarantees. You can also learn all about brokerages and find one that's right for you by going to our Broker Center. (Did you know that some well-regarded brokerages are offering commissions as low as $5?)

And if you're seeking income from your investments while you learn more about preferred stock, consider also taking our Income Investor newsletter for a spin, for free -- every month, it highlights promising investments that kick out significant income. A free trial will let you peek at all our past recommendations and see how they've done.


Read/Post Comments (0) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 490068, ~/Articles/ArticleHandler.aspx, 12/18/2014 7:45:24 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement