Common stockholders benefit from a company’s profits primarily through capital appreciation and dividends. When a company performs well, its earnings growth often leads to an increase in stock price, allowing shareholders to sell their shares at a higher value than their purchase price. This capital gain is a key incentive for investors.

Additionally, some companies distribute their profits as dividends, providing shareholders with regular income. While dividend payments are not guaranteed (unlike preferred stock), established companies with stable earnings often reward shareholders this way. Reinvesting dividends can further compound returns over time.

Another indirect benefit comes from retained earnings. When a company reinvests profits into expansion, R&D, or debt reduction, it can enhance long-term growth, boosting future stock performance. Stockholders may also benefit from stock buybacks, where a company repurchases its shares, reducing supply and potentially increasing share value.

However, common stockholders are last in line during liquidation, meaning they only receive residual value after creditors and preferred shareholders are paid. Despite this risk, the potential for high returns makes common stock a popular investment for those seeking growth and income from corporate profits.