Preferred vs. Common Stock: What’s the Difference?

To ensure that your investments yield the desired profits, it is crucial that you choose an investment security that matches your objectives and a time when the markets display a bullish trend. According to The Economic Times, the bullish trend is when there is an upward trend in the stock prices of the market, often distinguished with by an increase in investor confidence.

More than the market conditions, what determines your win is your research. It’s imperative that you are well aware of the different investment options and know their benefits.

When it comes to stock trading, two of the most talked about terms are those of common and preferred stocks. Let’s look at the differences:

Voting right

When it comes to the right to take part in any company’s key decision making, common stocks take the lead. Let’s say a company is all set to enforce a new policy or elect their next board of governors; the common stock holders will be formally invited to be a part of the voting process, whereas the preferred stock holders have no such benefit.

This voting mostly takes place on one vote per one share basis. This means that if someone holds a considerable number of shares in company, they’ll have good say in the company’s key decisions.

Priority of dividend

If a company isn’t doing well and the profits are falling, the common shareholders can wait but the preferred shareholders have to be paid at any cost. This means they are prioritized above common shareholders in terms of dividend payout.

Even at times of liquidation and insolvency, the preferred shareholders have a greater right over the company’s assets. Whereas, the common shareholders are last in line to be paid, even after the bondholders and other creditors.

Callability

Preferred shares are callable. This means the issuing company has the right to redeem or call back the shares at a predetermined time. The investor in this case is at an advantage because when the sharer is called back, the company also pays the investor a premium. This means that callable shares can be traded within the market at a higher share price as compared to non-callable shares.

Successful investment decisions are made with in-depth research and extensive knowledge of the markets you’re looking to step in.

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