Preferred vs. Common Stock: An Overview
There are many differences between preferred and common stock. The main difference is that preferred stock usually does not give shareholders voting rights, while common or ordinary stock does.
Both types of stock represent a piece of ownership in a company.
KEY TAKEAWAYS
- Preferred stock gives no voting rights to shareholders while common stock does.
- Preferred shareholders have priority over a company’s income, meaning they are paid dividends before common shareholders.
- Common stockholders are the last in line for company assets, meaning they are paid out after creditors, bondholders, and preferred shareholders.
Preferred Stock
Preferred stock resembles bonds, offering investors a fixed dividend akin to bond coupons until maturity.
The dividend yield of a preferred stock is calculated as the dollar amount of a dividend divided by the price of the stock.
In a liquidation, preferred stockholders have a greater claim to a company’s assets and earnings.
Common Stock
Common stock signifies ownership in a corporation and is the primary type of stock in which most investors engage. It entitles shareholders to profit shares (dividends) and voting rights.
Common stock tends to outperform bonds and preferred shares, it provides the biggest potential for long-term gains.
You can download the offline guide here Preferred vs Common Stock Guide
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