Common stock and preferred stock are both types of securities that represent ownership in a corporation. However, there are some key differences between the two:
Therefore, while common stock provides ownership rights and voting power in a company but carries higher risk, preferred stock provides priority in receiving dividends but typically does not offer voting rights.
Great explanation! Just to add on, preferred stock also has a predetermined dividend payment that is usually fixed, unlike common stock where dividends can vary depending on the company's performance and board's decision. Additionally, preferred stockholders have a higher claim on the company's assets and earnings in the event of liquidation or bankruptcy. This means that if the company faces financial difficulties, preferred stockholders would be paid back their investment before common stockholders. However, preferred stock does not typically have the potential for as much capital appreciation as common stock.