So this brings us to this month's lesson. You encounter the same kind of choice when you buy stock. But rather than deciding on the container it comes in, you decide whether you want preferred stock or common stock. Before we delve into preferred stock, you should know that most people buy common stock. Common stock is easier to buy and fluctuates in price more.
Preferred stock has a few differences.
Preferred stock typically pays a higher dividend than common stock. Because it pays out a larger dividend, the price of the preferred stock is less volatile. So if XYZ Corp announced a hot new product, the common stock might soar but the preferred shares wouldn't react as much. Some people choose to own preferred stock over common stock for a few reasons. Some like the idea that they can earn a much higher dividend.