Investing Series: What is the difference between “Preferred” and “Common” Stock or Shares?

This is a part of the Investing Series.

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It is exactly as hierarchical as it sounds: preferred versus common.

Think of gentry from way back when. If you were part of the elite in society, you were preferred.

If you were a peasant working your butt off in the fields under the hot sun for someone else, you were a commoner.

That’s it!

A preferred stockholder is someone who (generally) pays more money for the stock, and gets first dibs on:

• dividends (also called “preferred dividends” as opposed to “dividends” which are common dividends)
• getting paid back first (e.g. if the company goes bust, they get their money back before the common stockholders)

They may also get better dividends, and a whole bunch of other neat things, for the privilege of having forked out more money.

SUMMARY

• Preferred just means they’re first in line if anything happens to get their money back
• Common Shareholder means you are behind the Preferred Shareholders in line