• Preferred stock is more like a bond than common stock. It is a means for firms to raise money without worrying about the default risks inherent in bonds. They have several advantages that make them worth investing in, but they are offered largely for the benefit of the issuing firm. There are advantages accruing both to the investor and the issuer of the stock.
  
  

Stability

• Preferred stock has a fixed-rate dividend. This is appealing to many investors since it operates like a bond. The result is that preferred stock is less volatile than common stock, since it does not alter its dividend payments relative to the profitability of the company.
  
  

Payment

• Preferred stockholders get their dividends before holders of common stock do. If the firm is in trouble, the common stockholders might see their dividends placed back into the firm, while preferred stockholders still get paid. While some firms can withhold preferred stock payments, it always will come after the suspension of common stock payments.
  
  

Preference

• For the investor, when the firm declares bankruptcy, the preferred stockholders will get paid before common stockholders. Put simply, preferred stockholders get better treatment than common holders and always get paid first regardless of circumstances. Investors might benefit from the stability of such stock as part of their overall holdings as a hedge against risk.
  
  

Tax Deduction

• For the issuing institution, issuing preferred stock means that they can take advantage of the 80 percent preferred stock tax benefit. Benefits paid to preferred stockholders can be deducted from the firm's taxable income, up to 80 percent of the total payments. This is an important inventive to issue these stocks and, in general, gives the firm incentives to maintain its payments.
  
  

Control

• Preferred stock, for the issuing institution, means that the firm can raise money from conservative investors without giving up any control. While preferred stock is part ownership in a firm, such stock ownership does not result in any voting rights for the investor. The firm issuing the stock receives the benefits of a bond without the debt involved in bond issuing. It is a win-win for the firm.