What do common stock and preferred stock mean? What are the advantages and disadvantages?

There are many kinds of stocks, which can be classified according to different situations. Among them, common stock and preferred stock are the most common and most important. What do you mean by common stock and preferred stock? What are the advantages and disadvantages?

What is common stock

Common stock is one of the most common stocks. It is the first stock issued by each new company. It represents the property and ownership of shareholders in the company. Ordinary shareholders are the basic shareholders of the company.

In general, common stock has the following advantages:

① The shareholders shall participate in the formulation of the company's operation policy and the management of the company.

② Having unlimited rights over the company's profits and assets after the preference shares and creditors' demands are met.

③ Have the right to receive dividends and preferential dividends.

However, common stock also has the following disadvantages:

① When the company is in good condition, they will make more profits; on the contrary, they will make less profit, so the volatility of earnings is very high and the risk is very high.

② Most of the earnings from common stock are potential.

It can be seen that common stock is the stock with the largest return and the greatest risk. Common shares are generally classified as follows:

① Blue chip stocks. It is often a stock issued by some large companies. These companies generally have good performance, stable and mature, and also have strong financial strength, and occupy a relatively important or dominant position in similar industries, such as at & T, general motors, Exxon oil, etc. The shares issued by these companies generally have stable and generous dividends.

② Growth stocks. It refers to the stock issued by companies that grow faster in sales and earnings than the overall economy and the same industry. Moreover, these companies generally or a considerable part of the company's surplus are used as development funds, and only a small part of the surplus is distributed to shareholders as dividends. As these companies develop further, the price of the shares they issue will rise, and shareholders will eventually benefit from it.

③ Income shares. Stocks that yield a higher average current return. Most of the buyers of these stocks are the elderly, retirees and some corporate groups, such as trust funds and pension funds.

④ Cycle stocks. Its characteristic is, the business condition is better, the company's profit recovers and expands, causes the stock price to rise. On the contrary, stocks fall.

⑤ Speculative stocks. It refers to the shares of companies engaged in exploitative or risky business. These stocks sometimes rise many times in a few days, thus attracting some speculators. However, this kind of stock is also very risky.

⑥ Defense unit. A stock whose returns and dividends are better than average when the stock market turns bad. Stocks of utilities, gold, drinks, pharmaceuticals, etc. belong to this category.

What does preferred stock mean

Preferred stock, like common stock, represents the owner's property or ownership in the company. But this kind of stock has some preferred stock relative to common stock. This kind of preferred stock is mainly manifested in the following aspects:

① Prior to the payment of dividends on common shares, the company must pay dividends on preferred shares at the prescribed dividend rate.

② When the company is dissolved, reorganized or bankrupt, the holders of preferred shares have the priority to share the assets of the company.

However, the preferred stock also has some disadvantages

① The holders of preferred shares have no right to vote and have no right to interfere in the affairs of the company.

② Since the dividend yield is fixed, it is impossible for the holders of preferred shares to make a large profit.

③ It can be freely traded or transferred, but not withdrawn.

Preferred shareholders have the following types:

① Cumulative preferred stock. This kind of preferred stock is the most common and widely issued. It has two characteristics: one is the fixed dividend rate. Whether the company is profitable or not, its dividend will not be affected. Second, the dividend can be accumulated. When the company is in bad condition and unable to pay dividends, the preferred stock dividends can be accumulated. When the business situation improves, the company will pay the outstanding dividends. People who buy these stocks tend to have a steady income.

② Non cumulative preferred stock. It is relative to cumulative preferred stock. When the company's operating condition is not good and it is unable to pay dividends, the dividends can not be accumulated, and the shareholders can't ask for a replacement when the company's operating conditions are getting better.

③ Dividends are adjustable on preferred stock. The dividend yield of this kind of stock is not fixed, but adjusted with the interest rate of other securities or deposits, but the interest rate of this stock has nothing to do with the company's profit and loss.

④ Convertible preferred stock. It is a kind of preferred stock which can be converted into common stock in a certain proportion in a certain period of time. The conversion is based on the current prices of preferred and common shares. Because this kind of preferred stock can be linked with common stock, it has passivity.

⑤ Participating preferred stock. It is a kind of dividend that can share the company's extra surplus with common stock in addition to dividend distribution according to fixed dividend rate. This kind of stock is not issued much.

⑥ Recovery of preferred stock. Its characteristic is that the company has the right to recover the shares issued by the company at any time according to the prescribed price.

In addition, some investors also divide the shares into denomination shares and non denomination shares according to whether the amount of money is recorded on the shares; the shares are divided into registered shares and unregistered shares according to whether the amount of money is recorded on the shares; according to the stock rights of the shareholders, the stocks are divided into single Rights shares, multi Rights Shares and non authorized shares. There are many types of stocks, so we should learn more about stocks, which will be helpful for future investment and trading.

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