Chicks Chat and Change Fabulous Financial Facts – Common Stock Vs. Preferred Stock

Welcome to Chicks, Chat and Change. I am Ann Zuraw

We are continuing on with our Financial Terminology 101 and I promise to keep it simple.

You already know that the slice of cake represents one piece of ownership in a company and is called a stock share.

To raise capital, companies can issue two types of stocks — common stock and preferred stock.

Let’s start with what a common stock means. Most shares of stock are called common stock. If you own a share of stock, then you own a piece of the company. Common stock usually entitles the owner to vote at shareholders’ meetings and to receive dividends if and when they are available. The obvious risk with common stock is that is that the price per share may fall below what you actually paid for it.

The other category of stock is called preferred stock. As you can tell from the name, it holds some advantages over common stock. Preferred stock generally does not have any voting rights, but has a higher claim on any company assets or earnings than the common shares because preferred shares are priced much higher. They also take priority in the event that a company goes bankrupt and is liquidated.

For example, owners of preferred stock receive dividends before common shareholders. The value of a preferred stock doesn’t rise and fall with the market like common stock.

Common vs. preferred, that’s you class for today.
Thanks!

About Ann Zuraw

Ann Zuraw, the voice behind "Chicks, Chat and Change", is a Certified Financial Planner (CFP®), Chartered Financial Analyst (CFA®), and Certified Divorce Financial Analyst (CDFA™). If you have comments on this post contact Ann Zuraw

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