Preferred stocks are more like a fixed investment in a corporation, rather than an equity interest. They have a started rate of dividend, which is payable only if the corporation’s finances permit.
Owner of preferred shares receive a fixed dividend (not always guaranteed). They do not have voting rights at annual meetings or on company matters. If the company is wound up preferred shareholders have a claim, up to a fixed amount, over assets after creditors (including holders of bonds) have been paid. This claim takes precedence over those of common shareholders.
Most traded preferred stocks are cumulative. When the dividend is not paid it accumulates and must be paid in full before payment of dividends to holders of common shares. If a preferred share is non-cumulative, omitted dividend do not have to be paid. Dividend payments do not guaranteed.
There are other types of preferred shares:
- Retractable Shares
- Participating Shares
- Variable Rates Shares
- Redeemable Shares
- Convertible Shares
Common stocks represent a degree of ownership in the corporation. They may vote on questions affecting the corporation in proportion to the number of shares held. Common shareholders have rights to elect the directors of the corporation. However, some common stocks have limited voting rights, or no voting rights at all.
No matter which type of common shares is owned, the investor may still profit from an increase in stock prices or through dividends. Most stock traders are based on the expectation that the purchased stock will rise in price, and the investor’s profit will be the difference between price paid and price sold.