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What is the difference between Common Stock and Preferred Stock?

A preferred stock is higher up the equity chain than a common stock - preferred stockholders receive dividends first and will be paid out first in the event of liquidation.

The primary difference between a preferred stock and a common stock is that preferred stockholders have a greater claim to assets of the company. This can come in two forms: preferred shareholders being paid dividends first, and also having a higher claim to being paid out in the event a company goes bankrupt or liquidate assets.

Bondholders get paid out in the event of a liquidation, then preferred shareholders, then common stockholders. Common stocks carry higher risk but also the potential for higher returns.

Preferred stocks are priced in the secondary market, which tend to be more stable but provide less upside potential.

What are the Basics of Stocks?
What are the Tax Implications for Making a Profit (or Loss) On a Stock?

Keywords: stocks, dividends, bonds, preferred stock, common stock, convertible securities,