Preferred stocks combine characteristics of common stocks and bonds.
Preferred shares also do not normally vote, which distinguishes them from the common shares. While today there are a lot of different kinds of hybrid preferred issues, such as a call on the gold production of Freeport McMoran Copper and Gold to the point where they will deliver it, this article will consider characteristics of the most ordinary variety of preferred shares. Preferreds can be thought of as the lowest-possible grade bonds. The big point is that the dividend must be paid from after-tax money, making them a very expensive form of capitalization. Normally a common dividend may not be paid unless the preferred shares are fully paid.