Unit 10: stock valuation and market efficiency – discussion
However, this does not mean that all companies issue dividends to both types equally; rather they determine how much is paid out based on a variety of factors such as profitability and other external conditions. Common stock investors will usually demand a higher dividend rate than those who invest in preferred stocks because they bear more risk since their returns are not guaranteed like in the case with preferred stocks. Additionally, common stock investors could potentially receive larger returns from capital appreciation should share prices rise over time due to market speculation or increased earnings within the industry/sector. Therefore it makes sense for common stock investors seek higher yields when investing in order maximize their potential returns on investment.