Common and preferred stock are the two basic equity types companies issue. They differ in voting, dividends and priority — and that difference shapes value and risk. Here is the clear comparison.
Common Stock
Ownership with voting rights and a share of profits (dividends, if declared). It is the 'core' equity — riskier but captures upside through price growth.
Preferred Stock
Hybrid equity: fixed dividends (paid before common), priority in liquidation, usually no voting rights. It behaves somewhat like a bond with equity upside.
Key Differences
- Voting: common votes; preferred usually does not.
- Dividends: preferred fixed and prioritized; common variable.
- Risk/return: common higher risk/reward; preferred steadier.
Which to Choose
Common suits growth seekers; preferred suits income seekers wanting priority. In corporate finance, the mix reflects the firm's capital strategy.
FAQ
Which is safer, common or preferred?
Preferred — it sits ahead of common in distributions and liquidation.
Can preferred convert to common?
Separately, yes there are convertible preferred instruments.
Related: Dividend Policy and Cost of Capital.