Archive for July, 2011
Common Vs. Preferred
This article helps you differentiate on the technical level, between the categories of stock corporations, namely Preferred Stocks and Common Stocks. Starting with preferred stocks, which are primarily assisted by fixed dividends? Such stockholders are usually in a safer position, as they are promised dividends even in the case of bankruptcy. To them, their dividends are provided before commoners and bondholders, and the best part is it is flexible. Preferred stockholders can, at anytime change over to becoming commoners, but at the cost of voting rights in board meetings! All in all, these stocks are risk free, as dividends are ensured at all times. But what is a bit depressing about this side of the coin is that its dividends are always fixed. It doesn’t matter whether the company did better and gained more than the previous year, the outcome as dividends will remain what it always used to be! And all these factors make Preferred Stocks much cheaper.
On the other hand, the common stocks a visibly expensive, when it comes to purchase. They are as prestigious as a crown, and they have full rights to vote in the boardroom and thereby affect any decision. And quid pro quo: the more the shares, more the number of votes. Commoners’ dividends depend on the company’s performance on the stock market. If the company does well, quid pro quo the dividends will be high! And same story follows for the ugly side of it! But the problem is, that the commoners’ dividends are generated after the preferred shareholders. And in case of bankruptcy, dividend becomes quite uncertain, with a great number of odds against it. So, it comes down to a matter of risk as always. And one must consider which are worth going for!