Basically stocks are the type of securities which shows ownership or a right to claim in an organization or corporation’s earning. There are mainly two types of stocks
- Common Stocks
- Preferred Stocks
Majority of the shares are issued by any organization are in the form of common stock. Usually the shareholders of common stocks have voting power and preferred stocks generally do not have voting rights. Common stock holders generally have one vote per share of stock. This voting power employs in order to elect the board of directors and also for the policies of the companies. In the case of bankruptcy or liquidation of a company, preferred stocks and other creditors are usually given priority to pay their debt and obligations. On the other hand, common stock holders are paid after everything else. Common stocks are considered riskier investment than preferred stocks. But still many of the investors prefer to invest in common stocks reason is more risky the investment more return it gives, along with that it performs better as compare to other stocks and bonds. Here the payment of dividend varies depending upon the share value’s and their earnings therefore common stock holders should have endurance and willingness to admit the ups and downs faced by the company because it consequences will affect the dividends of shareholders. As a result of better performance of a company their earning will enhance as well due to which investors get more dividend mostly the investors reinvest their earning to get more and more return.
Dividend payment criteria in preferred stocks are fixed that’s why it is fewer risky than common stocks. Dividend payments are usually made on regular basis. Due to its stable and regular payment criterion it is usually classified as a fixed income security. Another advantage of holding preferred stock is that it gets all of its obligations earlier than common stocks in the case of bankruptcy and liquidation of a company. As preferred stock holders do not have voting rights therefore they just invest by purchasing stocks and then wait for their return on investment. They do not have any concern with the loss or profit of a company’s earning because they get fixed dividend in both the cases.