“Preferred stock” consists of shares of stock that have priority over common shares.  Preferred stock usually pays dividends, with preferred dividends required to be paid before common stock dividends.  Because of this, many financial ratios deduct preferred dividends when calculating returns and earnings that apply to common shareholders.

Preferred shareholders also have priority over common shareholders in the event of liquidation.  You may think of preferred stock as a hybrid of debt and equity.  Preferred stock has characteristics of both; although, it is presented within the equity section of the balance sheet.

Preferred dividends are usually fixed so that preferred shareholders receive no additional profits when things go well.  Preferred shareholders usually do not have voting rights either.