Week 3 Forum 1

Week 3 Forum 1
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Week 3 Forum 1
Common stock represents the type of securities owned by individuals in corporations. Owners are provided with voting rights as well as entitling them with the shares of the company in terms of capital appreciation also referred to as dividends (Dann, 1981). On the other hand, preferred stock is the type of ownership, but it has higher than common stock. Preferred stock dividends are always paid before any distribution to common shareholders.
The following are some of the things that Jack should take into consideration when he is choosing between common stock and preferred stock.
Looking at the two stocks, Jack should be aware that common stock is much riskier than the preferred stock but perform much better than the preferred stock. Common stock provides an option to sell or buy them at any time and thus gives you the chance to grow your stock. The other advantage is that you earn in two ways when you have invested in common stock. This is through capital gains and dividends received after a certain period. One of the limitations of this stock is that one doesn’t have the control; he solely depends on the firm to perform well so as to earn the dividends.
Preferred stock is a low-risk investment that generates long -term income. This stock also provides a fixed dividend that must be shared before any dividend is paid to common shareholders. The main setback for the type of stock is that preferred shareholders do not have same ownership rights in the firm as common shareholders.

After getting to understand the two stocks then jack should be in a position to general choose a stock that has dividends. He should also be able to identify the market gap so that he clears know the risk/reward he is to get in that stock. Lastly, he should check with the other investors to see their take on certain stocks so that he can make the right decision.
Reference
Dann, L. Y. (1981). Common stock repurchases: An analysis of returns to bondholders and stockholders. Journal of financial Economics, 9(2), 113-138.