Quick Definition

Preferred stock is a class of ownership in a corporation that has a higher claim on its assets and earnings than common stock. Preferred shareholders typically receive dividends before common shareholders and have priority in the event of liquidation, but they usually do not have voting rights.

Examples

• 1A company issues preferred stock to raise capital without diluting voting control among existing shareholders.
• 2During a company's liquidation, preferred shareholders are paid out from the company's assets before common shareholders.
• 3Preferred stock may be convertible into a certain number of shares of common stock, providing potential for capital gains if the company's stock price increases.
• 4Investors seeking steady income might buy preferred stocks because of their typically higher and more regular dividend payments compared to common stocks.

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