Is preferred stock an equity or a fixed-income security?

By Tom Drinkard AAA
A:

Preferred stock is equity. Preferred stock also (usually) has a fixed dividend payout. This is why some investors have referred to preferred stock as "a stock that acts like a bond." Perferreds are carried on the corporate balance sheet in the "Shareholder's Equity" column, not the debt column.

Preferred stock has a fixed dividend rate which makes it a "fixed-income security." There are a couple of exceptions, however. For example, participating preferred stock may receive greater income under certain circumstances. Also, if the corporation is experiencing cash flow difficulties, the board of directors may withhold preferred dividends. So, though preferred stock typically has a fixed dividend, it isn't guaranteed.

To continue reading on perferred stock, see A Primer On Preferred Stocks and What is the difference between preferred stock and common stock?

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