Common stock

What it means

Common stock is the standard type of equity share issued by public companies, and it is what most people mean when they talk about buying a stock. Each share typically carries one vote at shareholder meetings, giving owners a say in electing directors and approving major decisions. Common shareholders also have a claim on the company's residual profits, usually paid out as dividends.

That claim sits at the back of the line. If a company is liquidated, bondholders are paid first, then preferred shareholders, and common shareholders get whatever remains, which is sometimes nothing. Dividends on common stock are never guaranteed: the board can raise, cut, or eliminate them at any time, unlike the fixed payments on bonds.

Because common stock carries the most risk in the capital structure, it also offers the most upside. When a company thrives, common shareholders capture the growth through rising share prices and growing dividends, which is why common stock has historically been the main engine of long-term equity returns.

An example

For illustration, owning 100 common shares of a company lets you vote 100 votes at the annual meeting. If the board declares a $1 dividend, you receive $100; if the board suspends the dividend, you receive nothing and have no legal recourse.

Related terms

Preferred stock, Dividend yield, Ticker symbol, Market capitalization