Companies issue two types of stock – common stock, which we are all familiar with, and preferred stock. When you buy a share of common stock or preferred stock you own a piece of the company. The company records your ownership on their books under the heading “equity.” This is different than buying a company’s bonds, which are a loan that you are making to the company, recorded as “debt.”

Just like with common stock, a company’s preferred stock trades on a stock exchange (usually the New York Stock Exchange) under a unique trading symbol. You use this preferred stock trading symbol to buy and sell your shares. The market price of a company’s preferred stock fluctuates every day just like their common stock shares. A company can issue several “series” of preferred stock over time so the trading symbols of their preferred stocks usually have a letter designation A, B, C and so on (see example for Public Storage).

Most preferred stocks pay a quarterly dividend that is usually higher than the same company’s common stock dividend and preferred stock dividends are always paid to shareholders before the dividends of common shares, hence the name “preferred.” Preferred stock shareholders are always paid first. In exchange, however, preferred stock shareholders generally do not get to vote in corporate elections. And because the quarterly dividends are generally fixed and known in advance, the market price of a company’s preferred stock shares is generally less volatile (less speculation) than the market price of the same company’s common stock shares.

The dividend rate being offered by newly issued preferred stocks tends to go up and down over time (generally between 6% and 9%) and is closely related to prevailing interest rates throughout the economy. As interest rates go up and down over time, so will the dividend rates being offered on newly issued preferred stocks.

The dividend income that you earn from preferred stocks is based on the number of shares you own, not the current market price. So preferred stock investor’s dividend income remains the same whether prices are going up or down.

And rates and market prices of preferred stocks are also related, but inversely; that is, when rates are going up the market prices of preferred stocks will tend to go down and vise versa. Knowing this allows preferred stock investors to time their buying and selling activities.

Preferred Stock Investing, written in plain English for non-experts, teaches readers how to take advantage of these (and other) characteristics of the highest quality preferred stocks to generate multiple downstream capital gain opportunities while earning above-average dividend income in the meantime.