Preferred stock is similar to bonds in that its dividends are of a fixed size and are paid before common stock dividends are paid.

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Preferred stock is often referred to as a hybrid security as it shares characteristics of both bonds and common stocks. Like bonds, preferred stocks pay a fixed dividend, but unlike bonds, the dividend may be skipped or reduced at the discretion of the company's board of directors. Additionally, preferred stock dividends are paid before common stock dividends.

Preferred Stock Is Similar to Bonds in That Its Dividends