Preferred stock: It's a stock, it's a bond, no.......

— -- Q: When the price of preferred stock falls, do you lose money even if you still collect the interest payments?

A: Preferred stock has become more popular in recent years, but that doesn't mean it's any better understood.

As you're probably learning, though, preferred stock isn't as potentially lucrative as common stock and it's not as safe as a bond. Preferred stock has characteristics of both. For instance, preferred shares have the bond-like quality that they carry a relatively large cash payout. However, like common stock, the price of preferred shares can rise or fall dramatically during the trading day.

Let's say you bought a preferred stock when the price was $29 a share and the yield 10.4%. If the stock price falls, then yes, you will suffer a paper loss equal to the amount of the decline. But unless the company suspends its preferred stock dividend, you are still earning a 10.4% yield on your money.

Remember, like a common-stock dividend, preferred stock dividends can be suspended by a company at any time. When that happens, in many cases, the company must make preferred stock holders whole for any missed dividends before paying out a penny of common-stock dividends. Preferred stockholders have a claim before common stockholders on a company's dividends and assets.

So to answer your question, yes, if the price of a preferred stock falls, you suffer a paper loss. It's the same as if a stock you own falls in value. However, the preferred dividend payments are still relatively large and you continue to receive that unless the company cancels them. So that cash can help offset any decline in the stock price.