Preferred stock usually has priority for dividend payments over common stock.
Preferred shareholders generally receive a specified dividend before a company distributes dividends to common shareholders. This priority is one of the defining features of preferred stock, although the exact rights depend on the issue's terms.
Many preferred shares do not provide the same voting rights as common shares. They may instead offer a more predictable income stream and priority claims on company assets if the business is liquidated. Preferred dividends are not guaranteed: a company can suspend them if its financial condition or governing documents permit it.
Investors often confuse preferred stock with bonds. Both can provide regular income, but preferred stock represents ownership, while a bond is debt. Preferred shares can also be cumulative, meaning missed dividends accumulate, or noncumulative, meaning missed payments may not be recovered. Their market prices can still fluctuate with interest rates, company performance, and investor demand.