Preferred Shares vs. Common Shares

Companies issue stocks to raise capital for the company, and in exchange the companies grant buyers part-ownership in the company. Two types of stock that can be offered are common stock and preferred stock.

Voting Rights

Common stock shareholders have the right to vote on company policies. Preferred shareholders usually do not receive any voting rights.

Dividend Size

Preferred shares pay a fixed dividend to their shareholders at fixed intervals, such as annually or quarterly. Common shares are not guaranteed a dividend, and the dividend amount, if paid, can fluctuate.

Dividend Payments

Although a company can choose not to pay a scheduled dividend to preferred shares, it cannot make dividend payments to common shareholders.

Liquidation of Assests

If the company goes out of business, preferred shareholders must be paid before common shareholders. Common shareholders receive only what's left, if anything, after the preferred shareholders have been paid.

Price Fluctuation

The price of preferred stock will remain relatively constant, with changes resulting from changes in interest rates. Common stock prices fluctuate much more with company performance.

References

• Investopedia: What is the Difference Between Common Stock and Preferred Stock
• Buck Investor: Common Stock vs. Preferred Stock
• Investor Guide: Common and Preferred Stock