Preferred Stock Vs. Capital Stock

As an investor, you need to know the various categories of stock. Knowledge is power, and the lack of it can cost you money. Preferred and common stock shares fall under the category of capital stock. This is important to know because they have different pros and cons.

Capital Stock

Capital stock is both the preferred and common shares issued by a company, according to their corporate charter.

Preferred Stock

Preferred stock shareholders are a higher class of ownership who have primary access to a company's assets and earnings in the event of a bankruptcy. Preferred stock has a fixed dividend and is paid before common shareholders and other debt holders. However, preferred shareholders do not have voting rights within the company.

Common Stock

Common stock shareholders are lower in the ownership ladder, but they exercise control by voting for corporate policy and board members. Common stock dividends can fluctuate, and are paid after preferred shareholders.

Considerations

Consider owning a mix of preferred and common shares. An investor can have the safety of a preferred share as they are subject to low volatility, and provide a consistent dividend, and by owning common stock, he can also have voting rights.

Warning

Please consult your financial adviser.

References

• Forbes' Investopedia: Capital Stock Explained
• "The Wall Street Journal: Personal Finance Workbook"; Opdyke, J.; 2009
• "Business"; Griffin, R. & Elbert, R.; 2005