Recognizing different types of stock

Companies issue two basic kinds of stock, common and
preferred, and each provides shareholders with different
opportunities and rights:

 Common stock: Represents ownership in a company.
Companies can pay what are called dividends to their
shareholders. Dividends are paid out from a company’s
earnings and can fluctuate with the company’s performance.
Note: Not all companies pay dividends.

Common stock offers no performance guarantees, and
although this kind of stock has historically outperformed
other types of investments, you can lose your entire
investment if a company does poorly enough to wipe out
its earnings and reputation into the foreseeable future.
Common stock dividends are paid only after the preferred
stock dividends are paid.

 Preferred stock: Constitutes ownership shares as well,
but this stock differs from common stock in ways that
reduce risk to investors, but also limit upside potential,
or upward trends in stock pricing. Dividends on preferred
stock are paid before common stock, so preferred
stock may be a better bet for investors who rely on the
income from these payments. But the dividend, which
is set, is not increased when the company profits, and
the price of preferred stock increases more slowly than
that of common stock. Also, preferred stock investors
stand a better chance of getting their money back if the
company declares bankruptcy