Differentiating Preferred Stock from Common Stock

1. Differentiating Preferred Stock
from Common Stock
By: Darin Pastor

2. Differentiating Preferred Stock from Common Stock
A wealth manager and investment banking professional, Darin Pastor is the CEO of Capstone
Affluent Strategies. Darin Pastor manages the firm’s investments in portfolio companies, which are
usually in the form of common or preferred stock.

3. Differentiating Preferred Stock from Common Stock
Common stock and preferred stock are both forms of ownership of a company. However, they
have inherent differences: The holders of preferred stock are typically entitled to receive a fixed
dividend payment from the company, often in perpetuity. In contrast, holders of common stock
typically receive variable dividend payments from the company--and these payments must first be
approved by the board of directors.

4. Differentiating Preferred Stock from Common Stock
In addition, if a company enters liquidation, owners of preferred stock have a stronger claim over
the company’s assets than owners of common stock. After the claims of creditors and bondholders
are met, the remaining assets are first distributed to holders of preferred stock. Owners of common
stock come last.

5. Differentiating Preferred Stock from Common Stock
Preferred stock can have certain limitations: Holders of preferred stock may not have the ability to
vote on major company decisions, such as the election of a new board of directors. Owners of
common stock, on the other hand, have voting rights--and as a result, they have a say regarding
the future of the company.