Common vs Preferred Stock

Common Stock

• Voting rights (typically 1 share = 1 vote)
• Last to receive dividends (after preferred)
• Last in liquidation priority (after all creditors & preferred)
• Dividends are NOT guaranteed
• Unlimited upside potential
• Preemptive rights (in some cases) — right to maintain ownership %

Preferred Stock

• Generally NO voting rights
• Fixed dividend (stated rate, e.g., 5% of par)
• Priority over common for dividends AND liquidation
• Trades more like a bond (interest rate sensitive)
• Types: Cumulative, Participating, Convertible, Callable

Preferred Stock Types:

• Cumulative: Missed dividends accumulate as "arrears" — must be paid before common gets anything
• Participating: Can receive extra dividends beyond stated rate
• Convertible: Can convert into common stock at a set ratio
• Callable: Issuer can redeem at a specified price

Liquidation Priority (top = paid first):

1. Secured creditors (bondholders with collateral)

2. Unsecured creditors / debenture holders

3. Subordinated debenture holders

4. Preferred stockholders

5. Common stockholders (LAST — highest risk)

ADRs (American Depositary Receipts)

• Trade foreign stocks on US exchanges in USD
• Subject to currency risk
• Dividends paid in USD (converted from foreign currency)

Rights vs Warrants

• Rights: Short-term (30-60 days), below market price, given to existing shareholders
• Warrants: Long-term (years), above market price, often attached to bonds as sweetener