📘 Learn › Preferred Stock vs Common Stock
Preferred Stock vs Common Stock: What's the Difference?
The short answer
Both are equity in the same company, but they are bought for opposite reasons. Common stock is a bet on the company growing. Preferred stock is a claim on a fixed stream of income.
Side-by-side
| Preferred stock | Common stock | |
|---|---|---|
| Dividend | Fixed dollar amount, set at issue | Variable — can be raised, cut, or never paid |
| Dividend priority | Paid first | Paid only after preferred |
| Upside | Capped — price gravitates to $25 par | Unlimited |
| Voting rights | Usually none | Yes |
| Liquidation order | Ahead of common | Last in line |
| Main risk driver | Interest rates | Company earnings |
| Callable by issuer? | Usually yes, at par | No |
1. The dividend is the whole point
A common dividend is discretionary and can grow for decades — that growth is a big part of the long-term return. A preferred dividend is fixed in dollars from day one and will never grow. A 6% preferred pays 6% of par forever, no matter how well the company does.
The trade is priority. If the board has to choose, the preferred gets paid and the common gets nothing. In fact, a company legally cannot pay a common dividend while it is behind on a cumulative preferred.
2. Upside is capped — and that surprises people
Suppose a company thrives and its shares triple. The common shareholder triples their money. The preferred shareholder still collects $1.50 a year.
Worse, most preferreds are callable at $25. If falling interest rates would otherwise push the price to $29, the company simply redeems the shares at $25 and reissues at a lower coupon. That call option effectively puts a ceiling on the price.
3. What actually moves the price
- Common stock moves on earnings, growth, and sentiment about the business.
- Preferred stock moves mostly on interest rates — like a long-dated bond — and secondarily on whether the market still trusts the company to keep paying.
It is entirely normal for a company's common stock to rally while its preferred falls, simply because rates rose that month.
4. Voting rights
Common shareholders vote on directors and major corporate actions. Preferred shareholders usually have no vote at all. The typical concession: if the company falls a set number of dividend payments behind (often six quarters), preferred holders gain the right to elect one or two directors until they are made whole.
5. In a bankruptcy
The order is: lenders and bondholders first, then preferred, then common. In practice, preferred holders and common holders both frequently recover little or nothing — the preference matters most in a restructuring, not a liquidation.
Which is right for you?
That is a personal question and depends on your goals, time horizon and tax situation — this guide is educational, not advice. But the framing is straightforward:
- Want income now, with a defined payment and priority? That is the preferred.
- Want growth and a share of the upside, and can tolerate volatility? That is the common.
Key takeaways
- Preferred = fixed income with priority. Common = growth with unlimited upside.
- Preferred dividends are paid before common dividends — always.
- Preferred upside is capped by the $25 call price; common has no ceiling.
- Preferred prices track interest rates; common prices track earnings.
Compare live yields across issuers in the highest-yield preferreds list.
Frequently asked questions
This guide is for education only. Nothing here is investment, tax, or legal advice, or a recommendation to buy or sell any security. Figures on this site are drawn from SEC filings and live market data; always verify terms in the issuer's own prospectus before investing.