Preferred securities (preferreds) are often referred to as “hybrid” securities as they have both bond and equity characteristics. This hybrid nature results in preferred securities being senior to common stock but subordinated, or junior to bonds within a company’s capital stack. Similar to bonds, preferred securities offer a stated yield and a par value, which limits potential losses while not participating in potential price appreciation of a company’s common stock. While there are many types of preferred securities, dividends are generally guaranteed, but may be deferred based on company management’s discretion. Preferred securities, then, tend to offer a higher yield compared to other bonds issued by a company to attract investors
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