Preferred Stock

Investors have many choices when it comes to picking stocks and equities for their investment plans. Among them is preferred stock. Like common stock, it also represents an ownership interest in a corporation. However, preferred stock is labeled as such because it has priority over common stock. What does this mean? Basically, if you own preferred stock you are paid before stockholders that own common stock are paid. Also, preferred stock pays dividends on a regular basis, even if a corporation in not profitable.

Why, then, would anyone choose common stock over preferred stock? Preferred stock does not participate in a corporation's growth. Most investors want to reap the benefits of a company's growth over the security of preferred stock. In addition, preferred stock in a company usually carries a higher price tag than common stock in the same company.

Warning As far as investments go, preferred stock is not all that secure. While it's safer than investing in common stock for investment income purposes, if safety is a major selling point for an investment vehicle, you may want to consider investing in bonds.

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