This ownership entitles you to a share of the company's profits, a portion of which is paid in the form of cash dividends. Many preferred stocks carry a fixed dividend that does not change. Although this dividend is not guaranteed, a preferred stockholder is entitled to dividend payments before holders of common stock. Some preferred stocks also have call features that allow the company to buy back its stock at a predetermined date and price. Some preferred stocks have conversion features that allow the investor to convert their preferred stock to the company's common stock.
Most preferred stocks have no maturity date.
The dividend yield on preferred shares will generally be competitive with the interest rate on long-term corporate bonds. However, in return for their relatively high current income, if an issuing company were to encounter financial difficulties, its preferred dividend would be reduced before its bond interest would be affected. On the other hand, unless the stock has a conversion feature there is usually no potential for rising income and little opportunity for growth in principal. This means that if the issuing company ever has to liquidate, the owners of preferred stock have a prior claim to any assets that remain after other creditors have been satisfied. If a compnay encounters financial difficulties, the dividend payments on preferred shares usually have priority over common shares.