Why Is Preferred Stock Less Risky Than Common Stock To Investors?

Preferred stocks and the common stocks are the two ways through which the companies offer their equity to the investors. Preferred stocks do not give the voting rights to the investors but it ensures that the investor would be given a specific fixed amount of dividend every years regardless of the fact that the company incurs loss or profit. The investor cannot claim for more profit than the specified rate. In addition, in the case of the liquidation of the company, the preferred stockholders get the second claim on the assets after creditors. On the other hand, common shareholders have the voting rates and they share the profit and loss of the company. Moreover, in the case of the liquidation, they have the last claim on the assets of the company after creditors and preferred stockholders. As the preferred stockholders get the dividend even if the company incurs loss and they have the second claim on the assets of the company, therefore, preferred stock is less risky as compare to common stocks.