Common Stock vs. Preferred Stock

What's the Difference?

Preferred vs Common Stock

Common stock and preferred stock are both types of stocks, but they have some key differences. Common stock represents ownership in a company and entitles the holder to vote on certain corporate matters, such as the election of directors. Common shareholders are also entitled to a portion of the company's profits through dividends. Preferred stock, on the other hand, typically does not come with voting rights, but it does have a higher claim on assets and earnings than common stock. Preferred shareholders are also usually entitled to a fixed dividend, which is paid before any dividends are paid to common shareholders. Additionally, in case of bankruptcy, preferred shareholders will be paid off before common shareholders.

Typically common stock has voting rights, preferred stock has no voting rights, but a higher priority in payout if the company goes bankrupt.

Preferred Stock

Preferred stock is a type of stock that represents a type of ownership in a corporation. It typically does not come with voting rights, but it does have a higher claim on assets and earnings than common stock. Preferred shareholders are also usually entitled to a fixed dividend, which is paid before any dividends are paid to common shareholders. Additionally, in the event of bankruptcy, preferred shareholders will be paid off before common shareholders. Preferred stock also has a priority over common stock in receiving assets in case of liquidation. Preferred stock is considered less risky than common stock, but also less profitable since the dividends are fixed. Preferred stock can be considered as a hybrid between stocks and bonds, as it provides a fixed income and also has the potential for capital appreciation.

Common Stock

Common stock is a type of stock that represents ownership in a corporation. When an individual or entity buys common stock, they become a shareholder in the company and are entitled to a portion of the company's profits through dividends. Common stockholders also have the right to vote on certain corporate matters, such as the election of directors and major corporate actions like mergers and acquisitions. Common stock represents equity ownership in a company and the value of the stock is based on the company's performance and future prospects. The value of common stock can go up or down depending on the company's performance and market conditions. Common stock holders also assume more risk than preferred stock holders, but also have the potential for greater returns.

Is Common Stock or Preferred Stock Better?

It depends on the individual investor's goals and risk tolerance. Common stock represents equity ownership in a company and has the potential for greater returns, but also carries more risk. Preferred stock, on the other hand, has a higher claim on assets and earnings than common stock and typically comes with a fixed dividend, which can provide a more predictable income stream.

If an investor is looking for a high-risk, high-return investment, common stock may be a better choice. However, if an investor is looking for a more stable investment with a predictable income stream, preferred stock may be a better choice.

Another thing to consider is the stage of the company, if the company is in its early stages, common stock may be the only option to invest in the company, whereas for a mature company, both options can be available.

It is important to note that different stocks of the same company can have different characteristics, and it is important to research the specific stock and its features before making an investment decision.