Preferred stock is considered a hybrid investment since it has both the qualities of a stock as well as a bond. It is considered senior debt (higher ranking) to common stock, but are subordinate (lower ranking) to corporate bonds. In the case of a liquidation event, the shareholders will be first in line to get paid behind bond holders. If you are looking for higher yields than you’ll find at your local bank and believe the economy and the stock market will continue to recover, this might be an investment looking into.
Preferred stock is concerned with stockholders. Some companies have stockholders that are called preferred stockholders. In contrast if you bought shares you would be a common stockholder in that company.
The advantage of being a preferred stockholder is that you will get preference in receiving a payment for your shares. Needless to say this can be a good thing, but it depends on how you want to invest in shares in the first place. It is easier to be a common stockholder than it is to be a preferred stockholder, and many people like the flexibility of this as they can buy and sell shares whenever they see fit to do so.
Now, there are a few cons of investing in these types of stocks. The most important is that you don’t get any voting right with these stocks. Sometimes the companies use these types of stocks to prevent hostile takeovers.
There ia another disadvantage of preferred stocks is that they can be called anytime by the company after a certain date. You can’t do anything if the company decides to call back these stocks after that date. Preferred stocks get thinly traded as compared to the common stocks.
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