Common stock represents shares of ownership in a corporation and the type of stock in which most people invest. When people talk about stocks, they are usually referring to common stock. In fact, the great majority of stock is issued in this form.
Preferred Stocks are part common stock and part bond. High yield Preferred stocks are issued in market sectors such as utilities, real estate investment trusts, industrials, financials, conglomerates and others.
The below are the key difference of these two type pf stocks.
1. Voting rights: Preferred stock shareholders have no voting rights on the company because they technically do not own the company. Only common shareholders have voting rights and they own the company.
2. Dividends: The dividends for common stock are variable and are paid out depending on how profitable the business is. Preferred stock has a set dividend and redemption price.
3. Claim to earnings: Preferred shareholders are paid before common shareholders. This is true when the company is doing well and also true if the company liquidates.
4.Conversion: Preferred stocks can be converted to a fixed number of common stocks. However, common stocks cannot be converted into preferred stock.
5. Volatility: Common stock is more volatile then preferred stock.