What is the Difference Between Preferred Stock and Common Stock?

The main difference between preferred stock and common stock lies in the voting rights, dividend payments, and ownership rights. Here are the key differences between the two:

1. Voting Rights: Common stock grants shareholders voting rights, allowing them to participate in company decisions, while preferred stock does not have any voting rights.
2. Dividends: Preferred shareholders have priority over a company's income, meaning they are paid dividends before common shareholders. Common stock dividends can vary and are not guaranteed, while preferred stock dividends are more consistent and usually higher than those of Treasuries or bonds.
3. Ownership Rights: Both common and preferred stock represent ownership in a company, but common stock offers more potential for growth and downside risk, while preferred stock has limited upside potential and more protection in case of bankruptcy.
4. Price Volatility: Common stock has more volatility in share price than preferred stock, which has a more stable price.
5. Liquidation Priority: In the event of a company's liquidation, preferred shareholders have a higher claim on assets than common shareholders.

In summary, common stock is generally more suitable for long-term investors seeking growth potential and voting rights, while preferred stock is better for those seeking regular dividend income with lower risk and priority in dividend payments.

Comparative Table: Preferred Stock vs Common Stock

Here is a table comparing the main differences between preferred stock and common stock:

• Preferred stock has a higher priority in bankruptcy, meaning preferred shareholders are paid first in case of liquidation.
• Preferred stock does not have voting rights, while common stock gives shareholders voting rights.
• Preferred stock pays a fixed dividend, whereas common stock has variable dividends.
• Preferred stock has lower growth potential compared to common stock.
• Preferred stock generally carries less risk than common stock.

In summary, preferred stock is more suitable for investors who prioritize income and stability, while common stock is better for those who seek long-term growth and are willing to accept higher risk.