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What is common stock?

Common stock

What is common stock? Common stocks give you part ownership of a public company. Holders of this type of stock can vote on corporate issues, such as electing a board of directors and takeover bids, and are entitled to a share of company profits.

Key takeaways:

  • Common stock, also known as ordinary shares or common equity, represents ownership in a company and provides shareholders with voting rights and potential dividends.

  • Common stockholders have ownership stakes in the company and typically have the right to vote on important corporate matters, such as the election of the board of directors and significant company decisions.

  • Common stockholders may receive dividends if the company decides to distribute profits to shareholders.

  • Common stockholders can benefit from price appreciation, which occurs when the market value of the stock increases over time.

Where have you heard about common stocks?

When you purchase a company's stock you're nearly always buying the common stock. That's what most people are referring to when they talk about stocks and shares.

What you need to know about common stocks

There are two main types of stock – common and preferred. Preferred stocks are a cross between common stocks and bonds. They don't come with voting rights, but offer more stability than common shares as they have a fixed dividend rate.

Common stockholders are at the back of the queue for payments. They only receive dividends after preferred stockholders have received theirs. And if a company goes bankrupt, they don't get their money until all creditors, bond holders and preferred shareholders have been paid.

On average, common stocks perform better than preferred stocks or bonds over time, but they are more volatile.

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