Common, Preferred, and Other Types of Stock

When dealing with common or preferred stock, there are several different features that you will want to be aware of. There are several different types of stock that you could potentially invest in and all of them have unique benefits. Here are the basics of common, preferred, and other types of stock.

Common Stock

Common stock is a type of stock that is frequently purchased by investors. As the name implies, this is the most common type of stock that is available in the market. There are a few features that are commonly found with common stock. First of all, as an owner of common stock, you will have a claim on some of the profits that are generated by the company. This means that you will receive periodic dividends from the company. With common stock, you will also have voting rights for the company. For each share that you have, you will be given one vote. With these voting rights, you will be able to vote on a number of different issues that come up with the company. For example, you might be asked to vote on the members of the Board of Directors. With these voting rights, you will be given more votes for each share that you own. This means that as your ownership in common stock increases, your voting power is going to increase as well.

Preferred Stock

Preferred stock is another type of stock that is frequently issued by companies. With preferred stock, you are not going to have any voting rights with the company that issued it. One of the biggest benefits of purchasing preferred stock is that you will most likely be able to receive a fixed dividend for the life of the company. When you purchase common stock, you are only going to receive discretionary dividends. This means that when the company believes that it is a good time to issue a dividend, they will do so. However, you will not receive any guaranteed dividend payments as you would with preferred stock. Another advantage of owning preferred stock is that you will be in a position of seniority over common stockholders if the company files for bankruptcy. After all of the creditors are paid, the preferred stockholders will receive assets next. Then, if anything is left over, the common stockholders will receive some assets.

Cumulative Preferred Stock

It is possible to have a different type of preferred stock as well. One of these variations of preferred stock is referred to as cumulative preferred stock. With this type of stock, the company will allow you to accumulate dividend payments that were not made. If the company is going through tough financial times and they cannot afford to pay a dividend, they will accumulate your dividend payment for you and then pay you whenever things get better.

Classes

It is possible for a company to create different classes of stocks depending on their objectives. For example, they could create Class A and Class B stocks that each have different voting rights but are still considered to be common stock.

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