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Therefore this is a more efficient form of finance from the perspective of the issuer. However since the late 1970s it has become possible for most companies to issue high yield (junk) bonds, which have many of the same characteristics of preferred stock but where the interest coupon paid is deductible from corporate taxes. Preferred stock (or shares) was once widely issued to investors seeking yield. Some preferreds pay qualified dividends, currently taxable to individuals at a maximum 15% rate. Preferreds often do sport high yields, but in addition to interest rate risk, they're usually subject to call risk and nontrivial credit risk. Preferred stock, as a yield investment, acts similar to a fixed income security, the price reacting primarily to changes in interest rates. Examples of situations that would cause this to occur include: if the stock is redeemed by the investor (if it has such a provision) called by the issuer (many of them include a call provision allowing the issuer to call them early at its discretion) or the issuer is taken over or liquidated.

If the stock is called or redeemed investors will normally only get par value (ie $10.00 per share). They will also fluctuate with the perceived financial health of the issuer. The price of the shares will fluctuate with interest rates- down if interest rates go up, up if they go down, like bonds. The stock is normally issued at a fixed price (say $10.00 per share) paying a fixed dividend (say $0.60). However in return for these benefits, preferred stock has limited upside.