A stock is a security that proves ownership of an individual or a company in another corporation and it also represents a claim its earnings as well as assets.

There are basically two main types of security namely preferred and common. The latter allows the owner to place his/her vote during a shareholder’s meeting and is eligible to receive dividends as well. The former on the other hand includes owners who cannot vote but they do have a larger claim on earnings and assets compared to common shares.

For instance, owners who opt for preferred stock will be provided dividends before those who are common shareholders. In addition, they also enjoy priority in case a company goes bankrupt and is liquidated as a result.

What is a Common Stock?

A common stock is a security owned by shareholders that proves their ownership in a company’s stocks. Common stock holders retain control by voting for board of directors and on corporate policy. In case the company they own stocks in liquidates or goes bankrupt, they can exercise their rights on company assets only after bond holders, preferred shareholders and others are paid completely in the leftover assets.

This is why this kind of stock is riskier than preferred and debt shares. However, one upside is that they are usually better performers in the market compared to bonds and preferred shares in the long run.

What is a Preferred Stock?

A preferred stock is a sort of ownership in a company in which owners have more claim on assets and earnings compared to common stock. The stock pools debt features i.e. it pays off fixed dividends and equity and it can appreciate in price.

Plus each preferred stock’s details can differ according to the issue and owners have priority over common shareholders for dividends which are more profitable. Certain factors are specified by adjustable rate shares which also have an effect on dividend yield.

A company can also issue preferred stock in a number of different ways and according to any terms it deems necessary. Preferred stock comes in different forms; most preferred issues do not come with maturity dates or dates that are far off.

This is a brief analysis of the types of stocks you can come across in the market. For a more in-depth guide, thorough research is necessary.

Further Reading

  • Financing decisions: who issues stock? – [PDF]
  • Applications of physics to economics and finance: Money, income, wealth, and the stock market – [PDF]
  • Genetic algorithms in economics and finance: Forecasting stock market prices and foreign exchange—A review – [PDF]
  • Behavioral finance and its implications for stock-price volatility – [PDF]
  • The roles of stock market in the finance-growth nexus: time series cointegration and causality evidence from Taiwan – [PDF]
  • Convertible debt issuance, capital structure change and financing-related information: Some new evidence – [PDF]
  • Corporate focus and stock returns – [PDF]
  • The relation between corporate financing activities, analysts' forecasts and stock returns – [PDF]