Types of Stock

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Types of Stock

Stocks represent shares in the equity of a company. There are two basic kinds of stock: common and preferred.

Things To Know

  • Two basic kinds of stock: common and preferred.
  • Common stock is the most popular type.
  • Preferred stock pays fixed dividends.

Common stock

Common stock is the kind most investors own. When you own common stock, you generally receive voting rights, and you receive dividends if and when the company’s board decides to pay them. If the company were to be sold, common stockholders would have a right to a share of the value of the company’s assets—that is, if any are left after the company pays off creditors, bondholders, and owners of preferred stock.

Preferred stock

Preferred stock is called "preferred" for that reason—its owners have a prior claim to the company’s assets over the owners of common stock. Preferred stock usually doesn’t include voting rights, and it pays a fixed dividend. As a result, while preferred stock pays off in a more predictable manner, its holders don’t share in the company’s changing fortunes in the way common stockholders do. For that reason, preferred stock isn’t preferred by most investors!

While both types of stock represent a share of ownership in the company, the performance of each is unique, both while you hold your shares and when you trade them on the secondary market.