Preferreds

Preferred stock, or preferreds, are a class of equity securities issued by corporations, banks, and other entities to raise capital. They blend features of equity and debt: holders have priority over common shareholders for dividends and, in many cases, in liquidation, but they typically have limited or no voting rights and no guaranteed maturity.

Key features include fixed or floating dividends, priority of payments over common stock, and terms such as cumulative versus non-cumulative dividends. Some issues are participating, convertible into common shares, or perpetual; many are callable after a set date at a specified price. Dividend payments are typically quarterly, and the specific terms determine whether missed dividends accrue (cumulative) or do not (non-cumulative).

In liquidation, preferred stock generally ranks after debt but before common stock, making it riskier than bonds but less so than common equity. Prices are sensitive to changes in interest rates and issuer credit quality, and can be less liquid than some other securities. Call risk exists when issuers can redeem the shares at or near par after a call date. Tax treatment of dividends varies by jurisdiction and issuer.

Usage and markets: institutions issue preferreds to raise capital and support regulatory requirements, particularly in the banking sector. They are traded on stock exchanges and over the counter, with typical par values such as 25 or 100 dollars. Preferreds offer a higher fixed income component than common stock but carry different risk characteristics and are chosen by investors seeking income with a balance of risk and potential price appreciation.