What is the difference between common stock and preferred stock?

Common stock and preferred stock are two different types of securities that represent ownership in a company. Here are the main differences between common stock and preferred stock:(What is the difference between common stock and preferred stock?)

1.Ownership and Voting Rights:

• Common Stock: Common stockholders are the true owners of the company and typically have voting rights. They can vote on matters such as electing the board of directors and approving significant corporate actions.
• Preferred Stock: Preferred stockholders have a higher claim on the company’s assets and earnings compared to common stockholders. However, they usually do not have voting rights or have limited voting rights.

2.Dividends:

• Common Stock: Common stockholders may receive dividends, but the payment is not guaranteed. Dividends are typically paid out of the company’s profits, and the board of directors decides whether to distribute them.
• Preferred Stock: Preferred stockholders have a preferential claim to dividends over common stockholders. The dividends on preferred stock are usually fixed and paid at regular intervals. In the event of financial distress or liquidation, preferred stockholders receive their dividends before common stockholders.

3.Liquidation Preference:

• Common Stock: In the event of liquidation or bankruptcy, common stockholders have a residual claim on the company’s assets. They receive their share after all debts, preferred stock dividends, and other obligations have been paid.
• Preferred Stock: Preferred stockholders have a higher priority in the distribution of assets compared to common stockholders. They have a fixed liquidation preference and are entitled to receive their investment back before common stockholders.

4.Price Volatility and Capital Appreciation:

• Common Stock: Common stock prices tend to be more volatile as they are influenced by market conditions, company performance, and investor sentiment. Common stockholders have the potential for higher capital appreciation if the company performs well.
• Preferred Stock: Preferred stock prices are generally more stable than common stock prices. They are influenced by interest rates, the company’s creditworthiness, and the specific terms of the preferred stock. Preferred stockholders have limited potential for capital appreciation.

It’s important to note that the specific features and characteristics of common stock and preferred stock can vary depending on the company and the terms outlined in the stock’s offering documents. It is advisable to review the company’s prospectus or consult a financial advisor for detailed information on a particular stock.