With common stock, you have the potential for unlimited upside: There’s no limit to how high a stock price can go. Preferred stocks offer more regular, scheduled dividend payments, which may be appealing to some investors, but they may not provide the same voting rights or as much potential for growth in value over time. You’re probably more familiar with common stock, which provides voting rights and may even pay dividends. Common Stock vs Preferred StockĬommon stock and preferred stock both give the holders ownership of a company. Common stockholders are last in line, although they’re usually wiped out in bankruptcy. If a company goes bankrupt and is liquidated, bondholders are repaid first from the remaining assets, followed by preferred shareholders. Preferred stock’s priority ahead of common stock also extends to bankruptcy. Common stock dividends are reduced or eliminated before preferred stock dividends, although even preferred stock dividends may be lowered or eliminated in certain cases. If a company’s profits slump or it’s in the red and losing money, the company may choose to reduce or even end dividend payments. Preferred stock dividends are not guaranteed, unlike most bond interest payments. Income from preferred stock gets preferential tax treatment, since qualified dividends may be taxed at a lower rate than bond interest. Unlike bonds, preferred stock is not debt that must be repaid. Par value is used to calculate dividend payments and is unrelated to preferred stock’s trading share price. Like bonds, shares of preferred stock are issued with a set face value, referred to as par value. Preferred stock offers consistent and regular payments in the form of dividends, which resemble bond interest payments.
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