Preferred Stock

Some corporations issue preferred as well as common stock.

Preferred stock can be an attractive investment because it typically pays a fixed dividend on a regular schedule. The share prices also tend to be less volatile than the prices of common stock.

In fact, preferred stock prices tend to move with changing interest rates in the same way that bond prices do.

That's one reason this type of stock is sometimes described as a hybrid investment because it shares some characteristics with common stock and some with fixed-income securities.

What preferred stock doesn't generally offer is the right to vote on corporate matters or the opportunity to share in the corporation's potential for increased profits in the form of increased share prices and dividend payments.

Convertible preferred shares can be exchanged for a specific number of common shares of the issuing company at an agreed-upon price. The process is similar to the way that a convertible bonds can be exchanged for common stock.