Common vs. Preferred Stocks

There are two primary categories of stocks: common and preferred.

What is the difference between common and Preferred stocks?

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When purchasing common stock you are purchasing a partial ownership of that company. This often times comes with the right to buy newly issued shares from the company before they are made known to the public, limited liability if the company goes bankrupt and potential dividend payments. Also, according to Zion Investments’ “Types of Stocks” video, you also receive “entitlement to a portion of the assets of the corporation should it be liquidated.” This basically means you receive the rights to part of the property or value of the company you invested in the case that that company goes out of business. But, however, when a company is liquidated, common stock owners are the last priority to reimburse, which is one reason common stock ownership can be considered riskier than preferred stock ownership.

Common stocks are generally more volatile in certain assets, like bonds, than preferred stocks; however,  they generally have more room for growth.  Preferred stocks differ from common stocks in that they “have characteristics of debt securities”, according to Zion Investments’ video, “Types of Stocks”, “Preferred shares generally have a dividend that must be paid out before dividends to common shareholders, and the shares usually do not carry voting rights”.

All and all, preferred stocks and common stocks both have their pluses and minuses. Preferred stocks though seem to be the better option in my opinion because they are main priority to be paid back if a company is liquidated which is very important. Plus, their dividends are generally greater than those of common stock.

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