Preferred stock, also known as preferred shares and preference shares, allows stockholders to receive fixed dividends—that is, the amount in their dividends does not fluctuate. Those who hold preferred stock get paid before the holders of common stock. Preferred stockholders also get payout priority if a company liquidates.
There is no difference between preferred stock and common stock in the sense that holders of both kinds of stock are partial owners of the company. From another perspective, those who hold common stock actually have an advantage of the holders of preferred stock. That is due to the fact that shareholders with preferred stock do not have voting rights, as opposed to shareholders with common stock who are allowed to participate in the decision making process.
Different types of preferred stock include cumulative preferred stock, non-cumulative preferred stock, participating preferred stock, and convertible preferred stock.
