What are the advantages and disadvantages of common stocks?


Quick Answer

The primary advantage to owning common stock in a company is that common stockholders have a vote in shareholder decisions, according to Fox Business Network. The main disadvantage to common stock is that in the case of a company bankruptcy, the stockholders are paid off after bondholders and preferred stockholders.

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Full Answer

According to Fox Business Network, several other advantages to owning common stock include possible dividend payments and share appreciation. Each share held is generally equal to one vote on decisions, so a further advantage is the ability to have greater say in how the company is run through the purchase of additional common stock shares.

As Fox Business Network points out, disadvantages to common stock shares include the possibility of depreciation of the stock's worth should the company decrease in value. If there are no funds leftover after a bankruptcy to fully pay all bondholders and shareholders, then common stockholders may find that the shares are reduced in worth or may have no worth at all. In the majority of bankruptcies, common stockholders rarely see any repayment. Another disadvantage is that dividends are not guaranteed for common stock, nor paid at a set rate. If dividends are paid, they tend to be lower than the dividend rate paid to preferred stockholders.

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