By Damari Elio
There are two main types of stocks regarding investments: common and preferred. In Germany, the distinction between the two is a little more complicated than in other countries, as both types offer different rights and protections to shareholders. We explore all that you need to know about common vs preferred stocks in Germany.
Common stocks
They are the most basic type of stock. Common stocks represent an ownership stake in a company, and holders of common stock typically have voting rights on company matters. Common stocks usually have higher risk and higher potential returns than other investments.
Preferred stock
Preferred stocks are a bit more complex. Unlike common stocks, preferred stockholders do not have voting rights on company matters. However, they have a higher claim to a company’s assets than common stocks. It means that preferred stockholders would receive money before common stockholders do if the company goes bankrupt and begins selling off its assets.
In Germany, shares of common stock are referred to as “Stammaktien”, and shares of preferred stock are referred to as “Vorzugsaktien.” Each type has unique characteristics that may be more or less desirable depending on an individual investor’s goals and risk tolerance. However, one big difference between types is how dividends work. Unlike with common stocks, holders of preferred stocks aren’t eligible for dividends until all other claims have been satisfied first. Also, since they don’t represent voting rights, there isn’t such a thing as a “preferred shareholder.”
German stocks are known for their stability and reliability, but how safe are they?
The safest of the German stock securities out there is preferred stock. However, common stock can also be relatively stable, though it comes with greater risk than preferred shares. If you’re looking to invest your money in something secure, then look to Germany’s preferred shares.
When it comes to safety, investors should stick to blue-chip companies that have been around for decades or even centuries. These companies like Siemens (SI), Volkswagen (VOW3), Daimler (DAI) and Deutsche Bank (DB) offer very high dividends regularly, often raising them every year by 5%.
Because these companies are so big and have been around for so long, they are also very liquid. It means that you can always sell your shares quickly if you need to. And because of the high dividends, you’re likely to get your money back plus a healthy return on investment as well.
With that said, common stocks should only be invested in by those comfortable with a higher degree of risk. The reason is that blue-chip companies do not offer the same high returns as some of their smaller counterparts. Common stocks can be more volatile than preferred shares, swinging up and down in price more rapidly.
However, many new companies listed on the Frankfurt Stock Exchange (FSE) offer high returns with low risk. These include Rocket Internet (RKET), a company that helps startups grow, and Delivery Hero (DHER), a food delivery service.
So, if you’re looking for stability, stick to the tried and tested companies on the German stock market. However, if you’re after high returns with low risk, look at some of the newer listings on the FSE. Whichever route you decide to go down, make sure you do your research first.
So, what’s the verdict?
Preferred stocks are the safer option for investing in the German stock market, though common stocks can also be relatively stable. For those who want higher returns with low risk, several newer listings on the FSE offer very high dividends.
The most important thing to remember is that before you invest any money in Germany, make sure you do your research. Only put money into investments that you know will return a profit and only invest as much as you can afford to lose!
