Common Stock & Preferred Stock, Trading Common & Preferred Stocks

Friday, December 5, 2008

Common Stock and Preferred Stock

Both common and preferred stocks are stocks issued by companies. Most company stocks which are publicly traded in an exchange are common stock. There are some key differences between common and preferred stocks.

Common Stocks

They give partial ownership of the company.
They offer special voting rights, usually one vote per share.
Share holders have preemptive rights (right to maintain their proportional ownership).
Share holders receive dividends after preferred share holders.
They may or may not receive dividends (subjected to director board decisions), and usually get lesser and variable dividend amounts.
In case of liquidation they are the last in line to receive payments.

Preferred Stocks

They also give partial ownership of company.
They do not get any voting rights.
They guaranteed fixed dividend payments, and thus are often considered as a fixed-income security.
Their price is less fluctuating with market movements; usually they fluctuate with interest rate changes.
Stock holders receive priority over common stock holders to receive dividends.
In case of liquidation, they are the first in line to receive payments.
There are four different types of preferred stocks which have different features.