Preferred vs. Common Stock: What's the Difference?

Overview

Both preferred and common stock represent fractional ownership in a company.
Key difference: preferred stock shareholders have priority over a company's income, receiving dividends before common shareholders and are paid first in liquidation.
Common stock usually offers voting rights which preferred stock does not.

Combines features of bonds and stocks, providing predictable income through fixed dividends.
Par value influenced by interest rates; higher rates can reduce the value of the stock.
Features callability, allowing the issuer to redeem shares after a set period.
In bankruptcy or liquidation, preferred shareholders have priority claims.
Dividends are paid to preferred shareholders before common shareholders, often at a higher rate.
No voting rights are typically granted.
Types: Perpetual preferred stock with fixed dividends, convertible preferred stock that can be converted to common stock.

Represents ownership in a corporation.
Voting rights allow shareholders to influence corporate policies, such as electing board members.
Higher potential for long-term growth compared to preferred stock.
Dividends not guaranteed and are decided by the board of directors.
In insolvency, common shareholders are the last to receive payouts from company assets.

	Preferred Stock	Common Stock
Bond Similarity	Yes	No
Income Stream	Fixed dividend	May or may not receive dividends
Voting Rights	Usually none	Yes, usually one vote per share owned
Payment Priority	Senior to common stock shareholders	None
Growth Potential	Limited	Unlimited
Volatility	Less than common stock	Greater than preferred stock
Liquidity	Less liquid; may be hard to sell	Usually highly liquid

Preferred stock is generally less risky due to stable prices and priority dividends.
Common stock involves more risk but offers higher growth potential.

Preferred and common stocks appeal to different investor needs; preferred stock for income stability and common stock for growth potential.
Voting rights differ, affecting influence over company decisions.