Discuss the features of both common and preferred stock. Which would you rather purchase? Cite your reasonings for this decision
Common vs. Preferred-Sample Solution
Common Versus Preferred Stock
Common stocks refer to stocks entitle shareholders with voting rights and the company’s profits in the form of dividends and capital appreciation (Jones, 2019). It gives shareholders voting rights based on the number of shares they own, meaning they control major corporate decisions and policies. (Jones, 2019) observe that common stock provides profits through capital gains. These capital gains are also realized as the company grows, increasing its value and investor returns. The stocks are also suitable for long-term investments. Additionally, it experiences more dramatic movements in its share price volatility. Other features include unlimited upside potential, mostly given in single classes unless in cases where special voting rights are required.(Common Vs Preferred Stock Essay-Example)
On the other hand, preferred stocks refer to stocks issued with no voting rights, so preferred shareholders have no voice in the company’s major decisions or policies (Jones, 2019). It guarantees shareholders fixed dividends based on the current market price. Another feature is that it allows shareholders to redeem their shares after a pre-specified period and have higher yields than common stock. According to Jones (2019), the stocks experience less dramatic share price volatility movements and have a higher potential of being repaid when a company becomes bankrupt. Other features include being paid before common stocks, shareholders can purchase multiple classes of stock, and some preferred stocks can be converted into common stocks.(Common Vs Preferred Stock Essay-Example)
Therefore, based on the features of common and preferred stocks, it would be effective to purchase preferred stocks. Preferred stocks are prone to low market fluctuations, meaning that investors have low chances of losing their stock value., including during liquidation since they are paid first (Jones, 2019). Additionally, it’s preferable due to the higher potential of generating income, such as offering the safest bonds when interest rates are low. Lastly, converting some preferred stocks into common ones allows investors to recoup profits when their preferred stocks aren’t performing well.(Common Vs Preferred Stock Essay-Example)
Jones, C., P. (2019). INVESTMENTS: Analysis and management. (14th ed.). JOHN WILEY.