Mint Money Knowledge Center: What is 'common stock'?

What is a common stockWhen you start to get into the stock market, you will hear the term "common stock" constantly. You will hear it so much that you will automatically assume that you will just buy common stock when you make your first investment. But common stock has its pros and cons that make it worthwhile to do some research before you invest.

What Is Common Stock

According to Fox Business, common stock is a security that represents ownership in a company at a fluctuation dividend rate. Preferred stock owners have dividends at a set rate and preferred stock holders are always paid before common stock holders are paid. But common stock can grow along with the company and appreciate in value, where preferred stock cannot. Common stock also usually comes with voting rights, which is something preferred stock does not offer.

A Risky Investment

Getting paid dividends as a common stock owner can be difficult for two very big reasons. If the company fails and the assets have to be liquidated, then the preferred stockholders would get paid first. Also, company management must pay a dividend to preferred stockholders, but management can simply decide to not pay dividends on common stock for a particular quarter. With common stock, there is a lot of risk and reward to consider before you make your investment.

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