Difference Between Preferred & Common Stock

by Kenneth Hamlett ; Updated July 27, 2017

Most investors purchase the common stock of companies as an investment vehicle. Investors who purchase preferred stock have different benefits than common stock holders.

Similarities

Both common and preferred stock give the investor an ownership interest in a company and both trade on a stock exchange.

Preferred Stock

Preferred stock owners typically receive a fixed dividend, but they do not receive voting rights at the annual shareholders meeting. Preferred stock generally has less volatile trading characteristics than common stock.

Common Stock

Owners of common stock also receive dividends but only if declared by the Board of Directors, and the dividend amount varies. Common stock holders receive one vote per share owned at the annual shareholders meeting.

Other Differences

If a company dissolves, preferred shareholders and creditors receive funds before common shareholders. This makes preferred shares less risky than common shares, but it also gives common shares the edge in long-term performance.

Corporate Decision

The exact rights given to preferred shareholders vary with each company. Check the company’s prospectus or consult a broker for more information.

About the Author

From 2002-2006, Kenneth Hamlett was publisher and head writer for UNSIGNED Music Magazine, an online publication with over 100,000 readers. Prior to establishing UNSIGNED, Hamlett was a business solutions analyst and spent 15 years formulating and writing proposals for supply chain business solutions. He is a graduate of the New York Institute of Photography.