Prefer
red stock is in many ways like common stock but it differs from common stock in that the preferred stock holders are paid before common stock holders in profit sharing and liquidation.
Another cool aspect of preferred stock that common stock doesn’t have is the cumulative nature i.e. if dividends are not paid to a preferred stock holder then they are passed on to the next year and so on.
Even though preferred shareholders do not have voting rights, this may change in special circumstances like in the issuance of new shares, acqusition of another company, election of new directors and also when these shareholders have not been paid their dividends for a long time
Another reason that this type of stock is attractive to risk aversive investors is that these preferred stock pay a non fluctuating dividends and so more attractive to cash flow investors than common stock.
And this is a major reason why public companies shy away from issuing too much of this type of stock. Another reason why preferred stock is unpopular to public companies is that ies preferred stock holders are paid with after tax dividends and this means that the company cannot get tax breaks for this stocks. This means that they are expensive for a company.
Wikipedia says that they can be used by public companies to prevent hostile takeovers
Even though the preferred stock holders have a fixed dividend it is much lower than that of common stocks and these stocks(preferred)
Just like with other investment vehicles, preferred stocks are of many types and are covered more in this stock market site
Before taking the plunge a new investor must take time to research about the investment like the fundamentals of a company, the fine print in the stock issue, percentages, if the stock holder is willing to give up voting rights and a lower dividend.
The motley fool has the following to say about the power of preferred stock
