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Preference shares, more commonly referred to as preferred stock, are shares of a company's stock with dividends that are paid out to shareholders before common stock dividends are issued.

Preferred stock has a preference over common stock usually both in the payment of dividends and the distribution of assets.

In the event that a company is liquidated, preferred stock owners have a priority over the common shareholders in receiving the liquidation proceeds.

Unlike common shareholders, preferred shareholders usually are paid a fixed dividend that is not increased with the success of the company.

There is generally much less fluctuation in the price of preferred stock shares, and therefore there is often much less upside price appreciation potential in these shares than in shares of common stock in the same company.

Because preferred shareholders take less risk, their upside profit potential is not as great as that of common shareholders, but their downside risk is also not as great.