I was talking with my Financial Advisor and was told I own Preferred stock and Common Stock. I still don’t understand the difference, can you please explain?

Common stock represents ownership in a corporation. These are the shares you see traded in the S&P 500 index and they are the ones you think of on a daily basis like Apple and General Electric. They will fluctuate based on how many investors are buying and how many are selling. Many of these common stocks will also pay a dividend which is determined by the board of directors. This dividend can and will fluctuate. Should the corporation run into financial trouble or bankruptcy, the common stockholder is at the bottom of the ladder of the ownership structure.
Preferred stockholders have a greater claim to a company’s assets and earnings than common shareholders. Preferred stock is normally issued at $25 per share par value and the dividend payout is a set amount. It doesn’t fluctuate like the common stock dividend. At some point in the future, the preferred shareholder will be paid $25 back for his or her shares. In the meantime, the preferred shares can and will fluctuate, but the dividend is a set amount usually paid quarterly. Should the company issuing the preferred shares go through bankruptcy; preferred shareholders will have priority over common shareholders in bankruptcy court. Preferred shares are typically referred to as fixed-income securities and could be considered as somewhere in between a bond and a common stock based on its characteristics. Preferred shares are more interest rate sensitive meaning as interest rates rise it should affect the price of the shares, but not the dividend.

0 replies

Leave a Reply

Want to join the discussion?
Feel free to contribute!

Leave a Reply