Common Shares vs Preferred Shares: The Complete Guide to Choosing Your Investment

2026-01-06 10:49:26

When you enter the world of stock market investments, you quickly discover that not all stocks perform the same. Companies do not issue a single type of stock: there are common and preferred shares, each designed to attract different types of investors. But what is the real difference, and which one suits your profile?

The battle between two worlds: Common vs Preferred

First of all, you need to understand that we are talking about two financial instruments with different objectives.

Preferred shares are the perfect vehicle if you seek stable income. They do not give you decision-making power in the company (without voting rights), but in exchange, you receive fixed or pre-established dividends that are practically guaranteed. In case the company goes bankrupt, you are first in line to recover your money (though behind creditors). Think of them as a steroid-enhanced bond: predictable security, but without the explosive growth potential.

Common shares, on the other hand, are the speculator’s toy. Yes, you have voting rights in corporate decisions, and yes, you can make a lot of money if the company does well. But the price rises and falls according to the market, and dividends are not guaranteed. If the company fails, you are among the last to get paid.

Breaking down each type: Key features

Preferred Shares: Conservative investment

This type of share exists in various forms. Some accumulate unpaid dividends (if the company cannot pay in a quarter, it must pay later). Others are convertible, meaning you can transform them into common shares under certain conditions. There are also redeemable shares, which the company can buy back at any time.

What all have in common:

Priority dividends: They receive payments before common shareholders
No voting rights: You do not decide who runs the company
Interest rate sensitivity: If rates go up, the value of your preferred shares falls
Limited liquidity: Harder to sell quickly compared to common shares

Common Shares: The growth engine

Common shares represent real ownership in the company. When you invest here, you own a fraction of the business.

Their main features:

Voting rights: Participate in key company decisions
Appreciation potential: Your money can multiply if the business grows
High liquidity: You can sell quickly on major markets
Variable dividends: You earn only if the company is profitable
High risk: You lose more if the company fails

Visual comparison: Side by side

Aspect	Preferred Shares	Common Shares
Voting rights	No	Yes
Dividends	Fixed/prioritized	Variable/dependent on results
Growth potential	Low	High
Risk	Low-moderate	Significant
Priority in liquidation	Superior to common	Inferior to preferred
Liquidity	Limited	High
Price volatility	Low (linked to interest rates)	High (linked to the market)

The numbers don’t lie: Real market data

To illustrate the differences in practice, let’s look at the behavior in the U.S. market. The S&P U.S. Preferred Stock Index, which accounts for approximately 71% of the preferred stock market traded in the U.S., fell 18.05% over the last five years. In contrast, the S&P 500, which includes common stocks of large companies, rose 57.60% in the same period.

This gap reveals an uncomfortable truth: in an environment of rising interest rates, preferred stocks erode while common stocks take off. Why? Because when banks offer attractive rates, investors abandon the fixed dividends of preferred shares.

Which should you choose?

If you are under 45 years old and can afford to lose sleep: Common stocks are your path. Your time horizon is long, and compound growth is your best friend. You accept volatility because you know the market rises in the long term.

If you are close to retirement or simply hate stress: Preferred shares offer peace of mind. The regular dividend payments fund your life, and you more or less know how much you will receive each quarter.

The truth: You need both

Wise investors do not choose one or the other: they combine both types. Common shares generate growth, preferred shares generate income. Together, they balance your portfolio between earning potential and cash flow security.

How to get started: Three simple steps

Choose your broker: Find a regulated platform with good commissions. This is where you will execute your orders.
Define your strategy: Before buying, analyze the company. Review its numbers, sector, and prospects. Don’t buy just because.
Execute your order: You can buy at the current price (“market order”) or set your own price (“limit order”). Some brokers also offer CFDs on these stocks, allowing you to trade without owning them physically.

Final recommendation

Diversify your portfolio: Mix common stocks for growth and preferred stocks for income. This reduces risk without sacrificing profitability.

Monitor regularly: The market changes, and your strategy should evolve with it. Review your investment each quarter and adjust if necessary.

The difference between common and preferred shares is not just theoretical: it defines how your wealth grows. Choose wisely depending on where you are in your financial life.

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