There are two basic types of stock: common and preferred. Within those categories, stocks are also grouped by other factors, including company size, industry, location and growth potential.
The two main types of stocks
When a company sells shares of stock to the public, those shares are issued as either common stock or preferred stock.
Common stock is exactly what the name suggests: the most common type of stock. Most investors who own stock own common stock.
When you own common stock, you own a share in the company’s profits as well as the right to vote. The way voting rights are structured can vary, but commonly, shareholders get one vote per share owned. Common stock owners may also earn dividends, but those dividends are typically variable and not guaranteed.
Preferred stock is frequently compared to bonds, because it typically pays investors a fixed amount on a regular basis. That fixed amount is called a dividend.
Preferred shareholders get preferential treatment: Dividends are paid to preferred shareholders before common shareholders, including in the case of bankruptcy or liquidation. That’s not to say preferred shareholders can’t lose money: Preferred stock prices are less volatile than common stock prices, which means shares are less prone to losing value, but they’re also less prone to gaining value. In general, preferred stock is best for investors who prioritize income over long-term growth.
Companies might also divide their common and preferred stock into classes, in most cases so that shareholder voting rights are differentiated. For example, if you own Class A of a certain stock, you might get more voting rights per share than owners of Class B of the same stock.