From an investor's perspective, a firm's preferred stock is generally considered to be less risky than its common stock but more risky than its bonds.However, from a corporate issuer's standpoint, these risk relationships are reversed: Bonds are the most risky for the firm, preferred is next, and common is least risky.

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From an investor's perspective, preferred stock is less risky than common stock because preferred shareholders have priority over common shareholders in receiving dividends and assets in the event of liquidation. However, it's riskier than bonds because bondholders are paid before both types of stockholders. From the issuer's standpoint, bonds are considered the most risky because they come with fixed interest payments that the company is obligated to make regardless of its financial situation, increasing the risk of financial distress. Preferred stock is next because, although dividends can be suspended, there's still an expectation to pay them. Common stock is considered the least risky for the issuer since dividends are not obligatory and can be adjusted based on the company's financial health.

From an Investor's Perspective, a Firm's Preferred Stock Is Generally