Why Is Preferred Stock Referred to As "preferred"?


Quick Answer

According to Investopedia, preferred stock is called such because the stockholders receive preferential treatment when compared to common stockholders. This preferential treatment often includes guaranteed dividends not paid to common stockholders and first consideration for payouts of company assets to stockholders in case of bankruptcy.

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Full Answer

CNBC adds that unlike common stock, preferred stock does not offer voting rights with a company. Preferred stock and common stock may both appreciate in value, but the rate of appreciation of common stock is generally slower. Like common stockholders, however, preferred stockholders must wait in line behind company bondholders for payment of the stock's value in case of a company bankruptcy.

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