Dividend stock – What is it , How to Trade and Why should We Buy it
The reasons behind why a company would sell a dividend or preferred stock, are most of the time economical. Corporations issue those kind of stocks in order to raise more money and even though you anyone can buy them just like the common stocks, the dividend ones something that resembles a bond rather than a common stock. Investors basically buy them because of the fact that they provide the buyer with a steady dividend that stays the same despite the company’s performance.
If you are the owner of a preferred stock though, then even if the company grows, your income from the stock will be the same. That can work both ways though, since if a company doesn’t do well, they will basically still owe you the same amount. The name “preferred” derives from the fact that a company is forced to pay the dividend due on its preferred shares before the start paying out the common stock dividends. In the case of bankruptcy for example, the preferred stock owners will get money before the common stock owners. In the case of bankruptcy though, the common case is that none of the stock owners get anything, because there is usually nothing left to draw money from.
It is generally considered a good move, buying a dividend or preferred stock, but can still be a big risk considering it will still yield nothing in the end if the company does actually fail in its business endeavors and goes bankrupt. It is of course less of a risk when compared to the outcome a common stock can have. All in all though, the preferred stock is usually chosen for the steady income it provides and is most often issued by companies that have a good reputation already and a steady profit through their services and/or products.