Preferred stock vs common stock

FOX TOLEDO NEWS - Like a lot of financial jargon, you might have heard the term quite a bit, but not really understood it.

A preferred stock is just that. You'll probably prefer it right now over common stock.

Here's why: Like common stock, they pay dividends from the company's after tax profits. The difference is they have higher payouts.

Plus, preferred stockholders get priority over common stockholders in dividend payments and in the case of liquidation proceeds.

In other words, if the company you're invested in goes bankrupt, you're one of the first to get paid back.

Preferred stocks have greater price stability than common stocks, which is especially important in this up and down market. Also, they have some of the attractive qualities of a bond.

Preferred stocks are sensitive to interest rate changes, but not as dramatically as bonds are. Smaller amounts can be invested than most bonds, and they're more liquid than corporate bonds of similar quality.

In other words, it's easier to get your money out.

So if you're one of the many who's flocked to bonds, and you're still scared of common stock, you might want to consider preferred stocks.