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Common Stock VS Preferred Stock



When you dive into the stock market, you are usually investing in Common Stocks. Most of the new investors, don't know that there is another type of stock that you can choose. There are two kinds of stock that investors can invest in the stock market. These are Common Stocks and Preferred Stocks.







common stock vs preferred stock

What are the differences?


Inherent meaning


  • Common – With Voting Rights and right to receive dividends
  • Preferred – Without voting Rights but condition to receive preferential dividends

Voting Rights


  • Common – Have voting rights on various issues of the business
  • Preferred – Sorry, you don't have voting rights

Dividend Distribution


  • Common – Though you have the rights, you don't always receive dividends
  • Preferred – You will always receive dividends at a fixed rate

Priority


  • Common – If the company goes down, you will be the last one to be payed if there is anything left after disposing the assets since you are considered as the owner of the company.
  • Preferred – You are going to be paid, so don't worry.

Sharing Profit/loss


  • Common – If the company experiences losses, you will receive nothing (dividends)
  • Preferred – Irrespective of Profit or Loss, you will receive a dividend

Possibility of Growth


  • Common – Very High
  • Preferred – Pretty Low





If you are into Trading then Common Stock is the best option since it is volatile and is operating in the principle of Supply and Demand. If you are thinking long-term then you can choose to invest in Preferred Stocks because regardless of the company's financial standing, you will still have profit.


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