Stocks Basics: Different Types Of Stocks
  1. Stocks Basics: Introduction
  2. Stocks Basics: What Are Stocks?
  3. Stocks Basics: Different Types Of Stocks
  4. Stocks Basics: How Stocks Trade
  5. Stocks Basics: What Causes Stock Prices To Change?
  6. Stocks Basics: Buying Stocks
  7. Stocks Basics: How to Read A Stock Table/Quote
  8. Stocks Basics: The Bulls, The Bears And The Farm
  9. Stocks Basics: Conclusion

Stocks Basics: Different Types Of Stocks


There are two main types of stocks: common stock and preferred stock.

Common Stock
Common stock is, well, common. When people talk about stocks they are usually referring to this type. In fact, the majority of stock is issued is in this form. We basically went over features of common stock in the last section. Common shares represent ownership in a company and a claim (dividends) on a portion of profits. Investors get one vote per share to elect the board members, who oversee the major decisions made by management.

Over the long term, common stock, by means of capital growth, yields higher returns than almost every other investment. This higher return comes at a cost since common stocks entail the most risk. If a company goes bankrupt and liquidates, the common shareholders will not receive money until the creditors, bondholders and preferred shareholders are paid.

Preferred Stock
Preferred stock represents some degree of ownership in a company but usually doesn't come with the same voting rights. (This may vary depending on the company.) With preferred shares, investors are usually guaranteed a fixed dividend forever. This is different than common stock, which has variable dividends that are never guaranteed. Another advantage is that in the event of liquidation, preferred shareholders are paid off before the common shareholder (but still after debt holders). Preferred stock may also be callable, meaning that the company has the option to purchase the shares from shareholders at anytime for any reason (usually for a premium).

Some people consider preferred stock to be more like debt than equity. A good way to think of these kinds of shares is to see them as being in between bonds and common shares.

Different Classes of Stock

Common and preferred are the two main forms of stock; however, it's also possible for companies to customize different classes of stock in any way they want. The most common reason for this is the company wanting the voting power to remain with a certain group; therefore, different classes of shares are given different voting rights. For example, one class of shares would be held by a select group who are given ten votes per share while a second class would be issued to the majority of investors who are given one vote per share.

When there is more than one class of stock, the classes are traditionally designated as Class A and Class B. Berkshire Hathaway (ticker: BRK), has two classes of stock. The different forms are represented by placing the letter behind the ticker symbol in a form like this: "BRKa, BRKb" or "BRK.A, BRK.B".

Stocks Basics: How Stocks Trade

  1. Stocks Basics: Introduction
  2. Stocks Basics: What Are Stocks?
  3. Stocks Basics: Different Types Of Stocks
  4. Stocks Basics: How Stocks Trade
  5. Stocks Basics: What Causes Stock Prices To Change?
  6. Stocks Basics: Buying Stocks
  7. Stocks Basics: How to Read A Stock Table/Quote
  8. Stocks Basics: The Bulls, The Bears And The Farm
  9. Stocks Basics: Conclusion
RELATED TERMS
  1. Preferred Stock

    A class of ownership in a corporation that has a higher claim ...
  2. Common Stock Equivalent

    Securities such as stock options, warrants, preferred bonds, ...
  3. Share Class

    A designation applied to a specified type of security such as ...
  4. Complex Capital Structure

    The use of different forms of securities rather than relying ...
  5. Multiple Capital Structure

    The classification of a company's stock and bond offerings into ...
  6. Stock

    A type of security that signifies ownership in a corporation ...
RELATED FAQS
  1. What is the difference between Class A shares and other common shares of company's ...

    Discover how a company can break down its common stock into multiple classes and how these classes differ from one another ... Read Answer >>
  2. What is common stock and preferred stock?

    Learn about the differences between common and preferred shares. Explore situations where preferred shares have more favorable ... Read Answer >>
  3. Why would a company have multiple share classes, and what are super voting shares?

    Firstly, do not confuse different classes of common stock with preferred stock. Preferred shares are an entirely different ... Read Answer >>
  4. Can preferred stocks be traded like common stocks? Are their prices the same?

    First, let's look at the differences and similarities between common stocks and preferred stocks. Both represent a piece ... Read Answer >>
  5. What is the difference between the equity market and the stock market?

    Discover the basic information about the equity, or stock, market and the two primary classifications of equities that are ... Read Answer >>
  6. What are the types of share capital?

    Understand the characteristics of common stock and preferred stock, the two ways by which companies obtain share capital ... Read Answer >>

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