C. Types of Shares
Common stocks are the most common kind of stock. Common stockholders are not guaranteed dividends, but they may receive dividends during the company's prosperous periods. If a company fails or liquidates, common stockholders are paid after bondholders and preferred stockholders. Common stockholders assume the greater risk, but because they have voting rights at the company's annual stockholders' meeting, generally exercise greater control and may gain greater reward in the form of dividends and capital appreciation.
Preferred stocks pay a fixed dividend regardless of corporate earnings and have priority over common stock in the payment of dividends. Preferred stockholders also have priority over common stockholders in recouping their investment if the company fails or liquidates. However, preferred stock carries no voting rights and, should earnings rise significantly, the preferred holder receives the same fixed dividend while holders of common stock may collect more. The fixed income stream of preferred stock makes it similar in many ways to bonds.
American Depositary Receipts (ADRs) or Global Depository Receipts (GDRs), ADRs are receipts issued by a U.S. depositary bank that represent shares of a foreign corporation held by the bank. Because ADRs are quoted in U.S. dollars and trade just like any other stock, they make it simple for investors to diversify their holdings internationally.
GDRs are ordinary shares of a company that trade in the same form on any market in the world. Global Shares are tracked in a single global registry, and trade in the home currency of each market.