What Are Preferred Stocks? | The Motley Fool

Aug 18, 2016 · Preferred stocks are similar to bonds, and can be some of the best income investments. ... Founded in 1993, The Motley Fool is a financial services company dedicated to making the world smarter ...

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FAQs about What Are Preferred Stocks? | The Motley Fool Coupon?

Why are preferred stocks called preferred stocks?

Preferred stocks are called as such because preferred stockholders get preferential treatment to common shareholders. Here’s what that means. When a company pays dividends, preferred stockholders always get paid first. Likewise, if a company goes bankrupt, they always repay preferred stockholders’ shares before common shareholders. ...

Is preferred stock a good investment?

Both can be worthwhile investments, and you can find both types of stock on major exchanges. The main difference between preferred stock and common stock is that preferred stock acts more like a bond with a set dividend and redemption price, while common stock dividends are less guaranteed and carry more risk of loss if a company fails. ...

What is preferred stock & common stock?

When a company wants to raise capital, it can issue two kinds of stock: preferred and common stock. Common stock represents partial ownership of a company. When you buy it, you get certain voting rights, and you can earn immense gains if the stock’s value increases. Preferred stockholders, however, don’t have voting rights. ...

Should you buy preferred stock or common stock?

If you're looking for income, if you're looking for that stable, more guaranteed source of cash, preferred stock is better. Because if a company has financial trouble, the dividend for a preferred stock has to be paid before the dividend on common stock, so there's a nice thing about it. ...

Should a company issue more preferred stock?

With preferred stock, however, the company has an obligation to pay the dividend, and issuing more preferreds doesn't remove that obligation. In companies that exist to pay dividends, management can always issue more common stock to shore up earnings, a move that helps the preferreds even if it hurts the common stock. ...

What are preferred stock yields?

Preferred stock yields can be fixed or can occasionally vary based on a benchmark interest rate. Preferred stocks can exist in perpetuity or have a set maturity date when the company pays investors the original (par) value of the shares and they are retired. ...