What is the primary function of preferred stock?

The primary function of preferred stock is to provide equity with fixed dividends. Preferred stock is a type of ownership in a company that typically grants shareholders a fixed dividend before any dividends are paid to common stockholders. This makes it somewhat similar to debt in that it promises a return; however, it does not carry the same legal obligations as a bond.

Preferred shareholders generally do not have voting rights, which distinguishes it from common stock. Furthermore, while some preferred stocks may come with certain convertible features, not all do, and this is not the defining characteristic of preferred stock. The fixed dividend feature is particularly appealing to investors seeking predictable income, making it an essential mechanism for companies looking to attract capital while maintaining control over operations.