A class of stock that come with certain rights distinguishing them from holders of common stocks. Preferred stocks are a component of share capital that possess specific features not available to common shares, including specific rights and properties of both an equity and a debt instrument.

Preferred stocks usually provide higher dividends, and a better claim (priority) to an entity’s assets in the event of liquidation. Similar to debt instruments (e.g., bonds),  preferred stocks pay interest, often at a higher yield than bonds, while offering better dividend returns and less risk than common shares. These stocks have priority, over common stock, in receiving dividends. The dividend rate can be fixed or floating as defined in the terms of the issue. However, holders of preferred stock generally do not enjoy voting rights. This setback is made up by the ability to have their claims discharged before the claims of common stockholders at the time of liquidation.

Preferred stocks are also known as preferred shares or preference shares.