Preferred stock is one of the two types of stock issued by corporations seeking to bring in capital. As with common stocks or bonds, the money that is received from the sale of these shares goes into the company coffers in return for the issuance of the shares to the shareholders.
Although preferred stock does share similarities with common stock, its basic characteristics make it a fundamentally different security. Preferred stock is designed to function primarily as a fixed-income security, whereas common stock is usually considered to be a vehicle for long-term growth that often does not deliver a regular income stream. The nature and purpose of preferred stocks offers shareholders several unique advantages when compared to other investments.