should a company not have enough money to pay all stockholders dividends preferred stockholders have priority over common stockholders and get paid first 5 for holders of cumulative preferred stock any skipped dividend payments accumulate as dividends in arrears and must be paid before dividends are issued to common stockholders 
common stock and preferred stock trade on the open market investors can choose to purchase or sell either type of share however investors generally trade common stocks rather than preferred stocks due to their fixed dividends and lower risk profile preferred stocks typically have less price volatility and greater growth potential than common stocks because of their stable dividends and lower volatility preferred stocks are often favored by institutional investors pursuing a predictable income stream these stocks are also normally less liquid than common stocks meaning they are traded less frequently making them less suitable for retail investors looking for short term gains for common stock when a company goes bankrupt the common stockholders do not receive their share of the assets until after creditors bondholders and preferred shareholders this makes common stock riskier than debt or preferred shares 7the upside to common shares is they usually outperform bonds and preferred shares in the long run most companies issue all three types of securities for example wells fargo company has several bonds available on the secondary market preferred stock such as its series l wfc l and common stock wfc 89for a company to issue stock it initiates an initial public offering ipo an ipo is a major way for a company seeking additional capital to expand the enterprise to begin the ipo process a company works with an underwriting investment bank to determine the type and price of the stock once the ipo is complete the stock becomes available for purchase by the general public on the secondary market advantages and disadvantagesboth common stock and preferred stock have pros and cons for investors to consider pros and cons of common stockmore frequently traded than preferred stockhigher potential returnsvoting rightsmay not receive dividendslower priority to receive dividends or in the event of bankruptcymore price volatilitypros and cons of preferred stockhigher priority to receive dividendsless price volatilityfixed dividends that won t decreasemay lack voting rightslower potential returnstraded less frequently