Understanding Preferred Shares

Preferred shares offer companies a way to raise capital with less risk than traditional debt while providing investors higher yields than common equity. Companies typically favor issuing preferred shares due to their lack of a contractual obligation to pay dividends, which allows for greater flexibility during challenging financial times. From an investor's perspective, preferred shares are appealing because they provide income that is often deemed more secure, sitting higher in the capital structure than common equity. However, the lower coverage of preferred shares in the investment landscape has led to less attention and discussion compared to common stocks, even though they can be an excellent option for yield-seeking investors.