Question

Discuss common stocks and preferred stocks. Also, which common stock valuation method would you implement as an investor and why.

Answer 1

Common stock is a security that represents ownership in a corporation. Holders of common stockexercise control by electing a board of directors and voting on corporate policy.

Preference shares, more commonly referred to as preferred stock, are shares of a company's stock with dividends that are paid out to shareholders before common stock dividends are issued. If the company enters bankruptcy, the shareholders with preferred stock are entitled to be paid from company assets first.

As an investor looking for a long term investment, I shall use Dividend Growth Model because I assume that company would be able to provide me with consistently growing dividend over the period.