This article is from the Investing Articles: Stocks and Options series.
People invest in preferred stock for slightly different reasons that people in invest in common stock. Unlike common stock, preferred stock doesn't fluctuate in price very much. Since it doesn't fluctuate, there is little chance of buying preferred stock at one price then selling it at a higher price later and making a profit.
Why buy preferred stock? One reason is that preferred stock pays a dividend. A dividend is a portion of the companies profits paid to stock holders. Dividends are usually expressed as a dollar amount per share. Common stocks sometimes pay a dividend, but they are rarely as high or as consistent as the dividends on preferred stock.
Dividends are desirable for people who want income from their investments. Dividends are usually paid quarterly, so preferred stock investors can use this money to supplement retirement funds.
Preferred stock also has some security in case the company goes bust. Preferred stockholders are given priority over common stockholders during bankruptcy.