Preferred stock – Hybrid securities behave like bonds, trade like equities
Abstract: While discussions about stocks typically refer to common stocks, there’s also a second, less widely understood type of stock that straddles both the equity and bond world: preferred stocks. For equity investors motivated primarily by consistent, relatively high income payments, they may be worth a look. This article compares preferred stock with both common stock and bonds, noting that there are multiple flavors of preferred stock to choose from. But there are risks involved, making it generally preferable that such stocks form a relatively small component of a broadly diversified portfolio. A sidebar notes the varying tax treatment of preferred stock dividends.