What is the difference between common and preferred shares?

Question

Any answers are appreciated

Answer 1

Not a bond, more of a hybrid bond/equity share.
A class of ownership in a corporation that has a higher claim on the assets and earnings than common stock. Preferred stock generally has a dividend (and may dividends are "qualified" for the 15% tax rate) that must be paid out before dividends to common stockholders and the shares usually do not have voting rights.

The precise details as to the structure of preferred stock is specific to each corporation. However, the best way to think of preferred stock is as a financial instrument that has characteristics of both debt (fixed dividends) and equity (potential appreciation). Also known as "preferred shares".

There are certainly pros and cons when looking at preferred shares. Preferred shareholders have priority over common stockholders on earnings and assets in the event of liquidation and they have a fixed dividend (paid before common stockholders), but investors must weigh these positives against the negatives, including giving up their voting rights and less potential for appreciation.

Answer 2

Common shares are an ownership stake in the company which gives you rights to the company assets/profits.

Preferred shares are bonds with an option to convert to common shares at a certain price. A bond is loan on which interest is paid but you have no rights of ownership to the company assets/profits

If you bought a preferred share, you basically loan that money to the company and they agree to pay you interest on it. If the stock price rose dramatically, this would then be converted to regular share.... you would no longer get interest payments, but you could sell the shares for a profit....
You really need to be on top of your game when choosing a preferred share vs common share. There are pros and cons to both.

I highly recommend the following book:
The Intelligent Investor by Benjamin Graham & Jason Zweig

Answer 3

Dividends on preferred stock are paid before dividends on common stock. So if profits go down, they are in a better position.

On the other hand, Preferred stock is non-voting, and common stock can vote for directors.