What is the difference between common stock and preferred stock?

Usually, common stock allows the shareholder to vote, but preferred stock often does not confer voting rights. Both common and preferred stockholders can receive dividends from a company. However, preferred stock dividends are specified in advance based on the share's par or face value and the dividend rate of the stock.

What is a preferred stock?

Preferred stock is a distinct class of stock that provides different rights compared with common stock. While both types confer ownership in a company, preferred stockholders have a higher claim to the company's assets and dividends than common stockholders. This elevated status is reflected in the name “preferred” stock.

Is preferred stock a bond?

In many ways, preferred stock is like a bond. For example, the major source of return on a preferred stock is usually its dividend. Preferred stock is also more likely to pay out a higher yield than common shares. Like bonds, preferred stock performs better when interest rates decline.