In general, preferred stock and common stock are similar insofar that they are both equity securities; giving a shareholder a degree of ownership in a company. The main differences in the two types of stocks lie in the following: dividends, rates of return, priority, volatility and risk. In terms of dividends, it is mostly common for all preferred stock issues to pay greater dividends than those of common stocks provided by a given company. The rates can be likened to bond yields. Furthermore, the dividends paid on preferred stock are guaranteed as most preferred stocks are accumulative, which means that if a company were to skip a dividend payment, the shareholder would be sure to get payed retroactively. Because of guaranteed rates of return, the preferred stock will not tend to be sensitive to market trends. They are not very likely to increase in value, however the value will not depreciate either. A shareholder who possesses preferred stock will also have priority over one who possesses common stock insofar that they will be the first to receive any dividends before those holding common stocks. Finally, should a company dissolve, the owners of preferred stock will be the first to be paid before owners of common stock.
By StockPickTrading.com
