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Common Stock vs Preferred Stock: What's the Difference?

Investors often think of common stock and preferred stock as one and the same. However, there are some key differences between the two types of stock that investors need to be aware of. Here's a look at the key differences between common stock and preferred stock.

What is Common Stock?

Common stock is the most basic type of stock and is what most people think of when they think of stocks. When you buy common stock, you are buying a share of ownership in a company. As an owner, you are entitled to a share of the company's profits, known as dividends. You also have the right to vote on corporate matters, such as the election of the board of directors. If the company is ever sold or goes public, you'll also be entitled to a portion of the proceeds.

What is Preferred Stock?

Preferred stock is a type of stock that gives its holders preferential treatment when it comes to dividends and asset liquidation. Preferred shareholders typically receive higher dividends than common shareholders, and they have priority over common shareholders when it comes to receiving assets if the company is sold or goes public.

Key Differences

Now that you know a little bit about common stock and preferred stock, let's take a look at some of the key differences between the two:

  • Dividends: Common shareholders typically receive lower dividends than preferred shareholders.
  • Voting Rights: Common shareholders typically have voting rights, while preferred shareholders typically do not.
  • Asset Liquidation: In the event of a company sale or liquidation, preferred shareholders typically have priority over common shareholders when it comes to receiving assets.

These are just a few of the key differences between common stock and preferred stock. As you can see, there are some key advantages that preferred shareholders have over common shareholders. However, preferred stock typically comes with a higher price tag than common stock, so it's important to weigh the pros and cons before making any investment decisions.

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