Glossary · Defined term
Preferred stock
Preferred stock pays a fixed dividend ahead of common stock, with priority in liquidation but usually no voting rights.
Last updated Oct 2, 2026
What it means
Preferred stock is a class of company share that sits between bonds and common stock in the capital structure. It typically pays a fixed dividend that must be paid before any dividend goes to common shareholders, and in a liquidation preferred holders are paid ahead of common holders but behind bondholders. Most preferred shares carry no voting rights.
The fixed dividend gives preferred stock a bond-like character: its price moves with interest rates, falling when rates rise and rising when they fall. Many preferred issues are callable, meaning the company can buy them back at a set price after a certain date, which caps their upside. Some are cumulative, so any skipped dividends pile up and must be paid later.
Investors buy preferred stock mainly for steady income with slightly more yield than bonds from the same issuer, accepting that they give up the growth potential of common stock. Banks and utilities are the most common issuers, using preferred shares as a way to raise capital without diluting common shareholders' votes.
An example
For illustration, when a struggling company suspends its common dividend to preserve cash, its preferred shareholders keep receiving their fixed payments. The preferred dividend has priority, and skipping it would be a far more serious signal.