What is the difference between preferred stock, common stock, and cumulative preferred stock?

What is the difference between preferred stock, common stock, and cumulative preferred stock? What's the difference and what are the advantages of having one over the other one? Thank you.|||Preferred stock is ranked higher on the creditor's list, so holders will get paid first before common stock holders in the event of a liquidation. They pay regular fixed interest, usually quarterly, but sometimes bi-annually. I believe they have limited voting rights, but am not certain. Preferred stock do not have options, as far as I know.





Common stock is the lowest on the totem pole. In a case of bankruptcy and/or liquidation, common stockholders will get little or nothing. the common stock may pay dividends, which may be increased if the company does well. Usually more volatile. Common stock may have options.|||Pref's are higher seniority on the capital structure than common stock but act like hybrid bond/common equity instruments. Since they are issued with a face value that attempts to achieve a certain yield, they are sensitive to interest rates (like bonds) and their price tends to be more stable and will fluctuate more in response to interest rate changes than company fundamentals (in normal markets). As a rule, their pricing tends to be much more stable but they are much less liquid than common stock. They do not generally allow for voting rights unless an event (such as non-payment of the dividends) triggers voting privileges.





Cumulative prefs simply have a covenant stating that if the company cannot pay the dividends on the issue, the dividend payments accrue and must be paid out in full before any dividends are paid to common stock holders.





The advantages/disadvantages are purely relative - Prefs are great if you're looking for income/yield and greater price stability. If you are looking for capital gains, common shares are the appropriate instrument.