Basics of The Stock Market: Types of Stocks

Common Stocks: These type of stocks often give the owner the ability to vote at shareholder meetings and vote in electing members of the board of directors. It also many times allow the owner to receive dividends, a payment from the company to shareholders. The holders of this type of security are at the bottom of the priority structure for ownership. For example, if a liquidation happens; these type of stock shareholders have rights to assets only after the bondholders, preferred stockholders, and other types of debt holders are fully-paid.


Preferred Stocks: These type of stocks usually do not have voting rights, but they give the owner a larger claim on assets and earnings compared to common shares. Preferred stocks are also higher in the claim ladder. This would mean that owners of this type of stock have higher claim on a company’s assets and earnings compared to common stock.

A preferred stock is a class of ownership in a corporation that has a higher claim on its assets and earnings than common stock. Preferred shares generally have a dividend that must be paid out before dividends to common shareholders, and the shares usually do not carry voting rights.

Preferred stock finally combine the features of debt (pays fixed dividends) and that of equity (potential to appreciate in price). The details or information of each preferred stock depend on the issue.


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