What is preferred stock in simple terms?

Preferred stock is a type of share that pays dividends to shareholders before common stock pays out. It means that preferred stockholders get their dividends before common stockholders do.

Many companies have a liquidation preference, which entitles the preferred shareholders to be paid before common shareholders if the company enters bankruptcy. That is why they are referred to as "preferred."

What are the four types of preferred stock?

Cumulative, non-cumulative, participating, and convertible. Preferred stock can be cumulative or non-cumulative, meaning it must pay dividends for all missed dividends or does not have to.

The second type is a participating preferred share which means that you get your dividend plus an additional percentage of the dividends. It can also convert into common stock, which means it gets converted to common stock in certain circumstances.