The dividend discount model starts with the premise that that a stock's price should be equal to the sum of its current and future cash flows, after taking the "time value of money" into account. Now, there are two different concepts in that sentence, and both of them are vital to your understanding of investing. In the above common example, the worth of perpetual investment in preferred stock is more than finite investment in preferred stock. The reason is that the present value of infinite stream of Rs 2 dividends is higher than the present value of the anticipated future selling price (Rs 13). Preferred stock typically has (a) no voting rights, (b) an infinite maturity, (c) pays dividends as a percentage of par value, and (d) falls between bonds and common stock in the priority of claims. Preferred pays a dividend (which unlike interest can be skipped if the firm needs to preserve capital in hard times), which creates more risk than bonds.