Difference Between Common Stock and Preferred Stock

In general Common and Preferred stock own a share in a company and therefore the investors can claim on the company's asset and earnings. Both investors get profit when company run successfully and regarding the way of trading, no distinct difference are found as they trade in the same way using brokerage firm and transaction cost too shows no difference.

But there are more notable difference between these two types of stock which are summarized as below.

As far as Common Stock are concerned, the investors has rights to vote the Board of Directors who are in charge of making decision. But preferred stock holder are denied of voting privileges. For Preferred Stock dividend is fixed forever whereas in case of Common Stock dividend depends on the decision of the Board of Directors. Price vary for Common Stock and Preferred Stock even though it is issued by the same company. Preferred Stock is a stable one as income is regular whereas Common Stock is volatile. Preferred Stock stuck to tax liability as the value is of higher but common stock have no tax issue.

Regarding claiming on company's asset and earnings Preferred Stock holds a higher rank. In case of favorable condition were the company growth flourishes money are distributed to the preferred stock holders in form of dividend. In case of company's bankruptcy and liquidation preferred stock holder get the payment first, Common stock holder get the payment only after the preferred stock holder, creditors and bond holder get the payment. Mostly in case of Preferred Stock the price are based on the interest rate. If the interest rate are higher then the stock price goes down and if low then the price of stock hike.

If investors anticipation is to gain a profit through hike in stock price or capital growth and dividend, then investors can go on with Common Stock. In case if investors are more likely to get incessant flow of cash in dividend form, then they can switch on to Preferred Stock. In other word Preferred Stock is similar to "Fixed -Income Security".

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