Uncovering Preferred Stocks

When's the last time you thought about preferred stocks? Was it when you first studied the stock market in 10th-grade economics class?

You won't find much about preferred stocks in my new book The Millionaire Zone, but they do have their advantages for the Millionaire Zone investor.

So what is a preferred stock anyway? It's capital stock, issued by a corporation, just like its better known counterpart, so-called common stock. But unlike common stock, preferred stock doesn't participate in shareholder votes, and it doesn't normally benefit (or suffer) from changes in earnings.

So what the heck is "preferred" about it?

Well, for one, it usually pays a fixed and more generous dividend than the equivalent common stock, and in addition, those dividends are to be paid before any common dividend is paid. But there's an asterisk -- bond interest must be paid before preferred dividends.

It's hard to think of securities that toil in greater obscurity than preferred stocks. Most newspaper listings have cut out preferreds altogether (the Wall Street Journal publishes an abbreviated list once a week). Most preferred issues don't even show up on popular financial portals, and they're hard to get to on brokerage and other financial Web sites.

Click here for the video version of this story from Jennifer Openshaw.