Preferred stock is equity interest in a company which is has a higher claim to company equity and assets than common stock and a lower claim to company equity and assets than bonds. Preferred shares typically pay higher dividends than common stock, and dividends must be paid to preferred stock shareholders prior to being paid to common stock shareholders.
Unlike common stock shares, preferred shares typically do not entitle their holder to voting rights. Publicly traded preferred shares are issued by financial institutions such as banks and insurance companies, real estate investment trusts, and utilities.
Preferred stock can be either cumulative or non-cumulative. If a dividend payment for cumulative preferred shares is missed, it will accumulate and be due in a future payment. This is in contrast with non-cumulative preferred shares, for which no future dividend payment is due if one is missed.
As an asset class, preferred shares tend to be less volatile than common stock shares and more volatile than bonds. While they tend to pay higher dividends than common stock shares, they offer less opportunity for capital appreciation. While they typically pay more in dividends than bonds pay in interest, they have greater credit risk than bonds and therefore tend to be more volatile.