Corporations often have two types of stocks: common and preferred. There are both advantages and disadvantages to each. Let’s say you have $10,000 to invest in a corporation that issues both common and preferred stock. Your main goal is to maximize the amount of dividends received. Which of the types of stock would you invest in? Explain your answer.

1. SHARON LINK, PH.D.
Week 5 | Discussion
COMMON STOCK
V.
PREFERRED STOCK
Sharon Link, Ph.D. | Week 5| Common v. Preferred Stock

2. Sharon Link, Ph.D. | Week 5| Common v. Preferred Stock
Corporations often have two types of stocks: common and preferred. There are both
advantages and disadvantages to each. Let’s say you have $10,000 to invest in a
corporation that issues both common and preferred stock. Your main goal is to maximize
the amount of dividends received. Which of the types of stock would you invest in? Explain
your answer.
Support your statements with evidence from the required studies and your research. Cite and reference
your sources in APA style.

3. Presentation Guide
TOPIC OUTLINE
What is Common Stock?
What is Preferred Stock?
What are ways to maximize the dividends received?
Which types of stock should be invested in?
Sharon Link, Ph.D. | Week 5| Common v. Preferred Stock

4. What is
Stock?
STOCK, ALSO KNOWN AS EQUITY,
REPRESENTS OWNERSHIP
INTERESTS IN CORPORATIONS.
WHETHER YOU OWN ONE, 100 OR
100 MILLION SHARES OF STOCK IN
A COMPANY, YOU'RE AN OWNER
OF THE COMPANY.

5. Two Kinds
of Stock
Common Stock
Preferred Stock
Value Over Time
Vote for Company's Board of Directors
Regular Dividends
Many Different Types

6. What is Common
Stock?
According to Newscore (2019), "All stock is not created equal.
Companies offer two main types of stock: common and preferred
stock, each with its share of advantages and disadvantages for
investors. Common stock versus preferred stock Common stock
and preferred stock both represent some degree of ownership of
a company. Holding shares of common stock gives you the
opportunity to vote in the election of the board of directors. This
is usually equivalent to one vote per share that you own. Owning
preferred stock usually guarantees the payment of dividends but
does not come with voting rights."
Sharon Link, Ph.D. | Week 5| Common v. Preferred Stock

7. Common Stock Features
SHAREHOLDER
RIGHTS
Shareholders, therefore, control
the corporation through the right
to elect the directors. Generally,
only shareholders have this right.
CUMULATIVE
VOTING
The effect of cumulative voting is
to permit minority participation. If
cumulative voting is permitted, the
total number of votes that each
shareholder may cast is
determined first.
STRAIGHT
VOTING
With straight voting the directors
are elected one at a time. Each
time, This also guarantees that you
will win every seat, so it's really all
or nothing.
Sharon Link, Ph.D. | Week 5| Common v. Preferred Stock

8. Quick Fact:
According to Investing Answers (2019), "The most important attribute of
common stock is that holders are the last in line when it comes to getting
their money back. If the company goes bankrupt and has to sell off all its
assets, the cash from the asset sale first goes to pay off lenders, employees
and lawyers. The shareholders get whatever is left (which is usually nothing, or
just a few pennies for every dollar they originally invested)."
Sharon Link, Ph.D. | Week 5| Common v. Preferred Stock

9. What is Preferred
Stock?
According to Ross, Westerfield, and Jordan (2017), "Preferred
stock differs from common stock because it has preference over
common stock in the payment of dividends and in the
distribution of corporation assets in the event of liquidation.
Preference means only that the holders of the preferred shares
must receive a dividend (in the case of an ongoing firm) before
holders of common shares are entitled to anything."
Preferred stock is a form of equity from a legal and tax
standpoint. It is important to note, however, that holders of
preferred stock sometimes have no voting privileges.
Sharon Link, Ph.D. | Week 5| Common v. Preferred Stock

10. Preferred Stock Features
STATED VALUE
Shareholders, therefore, control
the corporation through the right
to elect the directors. Generally,
only shareholders have this right.
CUMULATIVE &
NONCUMULATIVE
DIVIDENDS
The effect of cumulative voting is to permit
minority participation. If cumulative voting
is permitted, the total number of votes that
each shareholder may cast is determined
first.
STRAIGHT
VOTING
With straight voting the directors
are elected one at a time. Each
time, This also guarantees that you
will win every seat, so it's really all
or nothing.
Sharon Link, Ph.D. | Week 5| Common v. Preferred Stock

11. Is Preferred Stock
Really Debt?
A GOOD CASE CAN BE MADE THAT
PREFERRED STOCK IS REALLY DEBT IN
DISGUISE, A KIND OF EQUITY BOND.

12. Preferred Stock...
Preferred shareholders are only entitled to receive a stated dividend,
and, if the corporation is liquidated, preferred shareholders are only
entitled to the stated value of their preferred shares. Often, preferred
stocks carry credit ratings much like those of bonds. Furthermore,
preferred stock is sometimes convertible into common stock, and
preferred stocks are often callable.
Sharon Link, Ph.D. | Week 5| Common v. Preferred Stock

13. Quick Fact:
According to Investing Answers (2019), "Although preferred stock owners don't
usually get any voting rights, they usually receive a steady dividend and their
claim to the company's assets "outrank" the common stockholders' claims (i.e.,
in the event of bankruptcy, the company must pay off lenders, preferred
shareholders, employees and lawyers before the common shareholders get
anything)."
Sharon Link, Ph.D. | Week 5| Common v. Preferred Stock

14. What are dividends?
A DISTINCTIVE FEATURE OF
CORPORATIONS IS THAT THEY HAVE
SHARES OF STOCK ON WHICH THEY ARE
AUTHORIZED BY LAW TO PAY DIVIDENDS
TO THEIR SHAREHOLDERS.

15. About Dividends
Dividends paid to shareholders represent a return on the capital directly or indirectly contributed to the
corporation by the shareholders. The payment of dividends is at the discretion of the board of
directors.
Some important characteristics of dividends include the following:
Unless a dividend is declared by the board of directors of a corporation, it is not a liability of the
corporation. A corporation cannot default on an undeclared dividend. As a consequence, corporations
cannot become bankrupt because of nonpayment of dividends. The amount of the dividend and even
whether it is paid are decisions based on the business judgment of the board of directors.
The payment of dividends by the corporation is not a business expense. Dividends are not deductible
for corporate tax purposes. In short, dividends are paid out of the corporation's aftertax profits.
Dividends received by individual shareholders are taxable. However, corporations that own stock in
other corporations are permitted to exclude 70 percent of the dividend amounts they receive and are
taxed only on the remaining 30 percent.4
Sharon Link, Ph.D. | Week 5| Common v. Preferred Stock

16. Concept Questions
WHAT IS A PROXY?
PresentatA proxy is the grant of authority by a shareholder to
someone else to vote that shareholder's shares. For convenience,
much of the voting in large public corporations is actually done by
proxy.ions are communication tools that can be lectures.
WHAT RIGHTS DO STOCKHOLDERS HAVE?
Every corporation has a hierarchy of rights that accompany the
three main types of securities that companies issues (bonds,
preferred stock, and common stock). The priority of each type of
security is common stockholders on the bottom, with preferred
stockholders over them, and bond holders having the greatest
priority.
z

17. Concept Questions
WHAT ARE SHAREHOLDERS RIGHTS LAWS?
Every corporation has a hierarchy of rights that accompany the
three main types of securities that companies issues (bonds,
preferred stock, and common stock). The priority of each type of
security is common stockholders on the bottom, with preferred
stockholders over them, and bond holders having the greatest
priority.
COMMON STOCK RIGHTS
Common stockholders usually have the right to vote on major
issues affecting the company, like mergers and liquidation of the
corporation's assets. They also have part ownership of the
company which can then be traded on a secondary market (the
stock exchange). Common stockholders also have an entitlement
to dividends, albeit, only after preferred stockholders.
z

18. What are ways to maximize the
dividends received?
Stocks that can deliver steady dividend growth, rather than the richest yields, offer the most fertile ground for dividend
investors.
According to Laise (2017), "Dividend investing is supposed to be a bit like watching grass grow: steady progress, few
surprises. But lately, investors holding dividend-paying stocks have suffered some jarring setbacks. Higher-yielding
sectors such as utilities and real estate investment trusts saw valuations soar through much of 2016, then suffered
sharp pullbacks later in the year. Analysts see more pain ahead for high-dividend-yielding stocks as interest rates start
to rise, diverting income-focused investors from stocks into bonds. A stretch of stagnant earnings growth, meanwhile,
put the brakes on the double-digit dividend growth that investors have grown accustomed to since the financial crisis.
Standard & Poor’s 500-stock index dividends climbed just 5% in 2016."
Sharon Link, Ph.D. | Week 5| Common v. Preferred Stock
Sharon Link, Ph.D. | Week 5| Common v. Preferred Stock

19. GROWTH
STOCKS
Shares of fast-growing,
higher-risk companies.
They offer a higher
chance of higher
returns and a higher
chance of bankruptcy.
Three Different Types of Stocks
TECH
STOCKS
Shares of technology
companies. Like growth
stocks, they are
generally riskier than
other types of
companies, but they
also offer a chance at
very high returns.
CAP STOCKS
Stocks from small, mid-
size and large
companies. The "cap" is
short for capitalization,
which is simply the
number of shares
outstanding times the
current price per share.
Sharon Link, Ph.D. | Week 5| Common v. Preferred Stock

20. PREFERRED STOCK
The most important priority an investor in
preferred stock enjoys is receiving cash
dividends before common stockholders are
paid any cash dividends.
WHICH OF THE TYPES OF
STOCK WOULD YOU
INVEST IN? EXPLAIN
YOUR ANSWER.

21. References
Investing Answers. (2019). Stock. Retrieved from
https://investinganswers.com/dictionary/s/stock
Laise, E. (2017, March 08). Retirees, Maximize Your Income From Dividends. Retrieved
from https://www.kiplinger.com/article/retirement/T018-C000-S004-maximize-income-from-
dividends.html
Ross, S., Westerfield, R., & Jaffe, J. (2013). Corporate Finance, 10th edition eBook.
Retrieved from https://www.amazon.com/Corporate-Finance-10th-Stephen-Ross-
ebook/dp/B00DEWITM2
Shareholders Rights. (2019). Retrieved from https://www.hg.org/shareholders-rights.html