What Is a Preferred Stock?
The term "stock" refers to ownership or equity in a firm. Preferred stockholders have a higher claim to dividends or asset distribution than common stockholders. These dividends can be fixed or set in terms of a benchmark interest rate like the London InterBank Offered Rate (LIBOR) and are often quoted as a percentage in the issuing description. The details of each preferred stock depend on the issue.
- Preferred stock has characteristics of both bonds and common stock which enhances its appeal to certain investors.