ON vs PN vs Units: which one makes sense for your portfolio?

In the Brazilian stock market, investors often face a choice: buy common shares (ON), preferred shares (PN), or opt for Units that combine both? Each offers a different package of rights and benefits, and understanding these differences is essential to building an investment strategy aligned with your goals.

When you buy a share, you are acquiring a real slice of a company – becoming a shareholder with the right to participate in profits and corporate growth. But not all shares work the same way. Some types prioritize influence over company decisions, others focus on receiving higher dividends, and some aim for the best of both worlds. Let’s unravel this.

Units: the practical entry point

Let’s start with Units, because they are simpler than they seem. Imagine a Unit as a “combo kit” from the stock exchange: in a single purchase, you acquire a pre-assembled package containing common and preferred shares of the same company, without needing to trade each separately.

Why does this matter? Because you get diversification in just one transaction. Real example: by buying a Unit of Santander (SANB11), you are getting 1 common share + 4 preferred shares at once. Klabin (KLBN11) and Sanepar (SAPR11) work the same way.

The practical benefits are:

Operational simplicity: no need for multiple trades at the brokerage.

Greater liquidity in many cases: especially when individual ON and PN shares have low market trading volume.

Balanced exposure: you get voting rights (via ON) and dividend preference (via PN) all at once.

The downside? The ratio between ON and PN is decided by the company, not by you. If you preferred 70% PN and 30% ON, you couldn’t customize this in a Unit.

Common Shares (ON): voting power, but no priority

Common and preferred shares differ mainly in two points: voting rights and dividend priority. Let’s start with common shares.

On the Brazilian stock exchange, they are identified by the “3” at the end of the ticker (PETR3, VALE3, ITUB3). The main difference? Voting rights in general meetings. The more ON shares you hold, the more influence you have over strategic decisions.

This is especially relevant in companies where critical decisions are happening: mergers, management changes, approval of large investments. If you are a long-term investor with a significant stake, having an active voice at the negotiation table can make a real difference.

Besides voting, holders of common shares receive:

• Dividends: a share of the profits distributed by the company
• Subscription rights: preference to buy new shares if the company issues new stock
• Bonuses: distribution of new shares proportional to what you already own

Risks? ON shares experience market volatility like any other security. And here’s the “but”: unlike preferred shares, you do not have priority if the company decides to distribute limited dividends. In times of crisis, the first to receive are preferred shareholders.

Examples of traded ON shares: Petrobras (PETR3), Vale (VALE3), Itaú Unibanco (ITUB3).

Preferred Shares (PN): receive dividends first

Identified by “4” or “5” in the ticker (PETR4, BBDC4, GGBR4), preferred and common shares mainly differ in profit distribution.

PNs do not give voting rights, but offer guaranteed priority in receiving dividends. In many cases, the company’s bylaws set a fixed minimum percentage that preferred shareholders receive before any distribution to common shareholders.

Practical example: Banco Santander always distributes 10% more dividends to PN (SANB4) compared to ON (SANB3). If the bank divides R$ 100 profit, preferred shareholders get their share first and usually larger.

This is especially protective in scenarios of crisis or lower profitability. While the company divides a small pie, those with PN are in the priority line.

Other advantages of preferred shares:

• Higher liquidity: in many cases, they are more traded than ON, easing buying and selling
• Preference in reimbursement: if the company is liquidated, PN gets paid before others
• Same subscription and bonus rights: like ON

The disadvantage? No voting rights, so you cannot influence corporate decisions. Rarely a problem for minority investors, but in situations where management makes questionable choices, PN shareholders are left unprotected.

Market examples: Petrobras (PETR4), Bradesco (BBDC4), Gerdau (GGBR4).

The protection you can’t ignore: Tag Along

Regardless of choosing ON, PN, or Units, there is a protection mechanism you need to know: Tag Along.

Imagine an investment fund acquires full control of the company you hold shares in. Without protection, you could be left with stock in a company under new management, with no say. Tag Along changes that.

This right allows minority shareholders to sell their shares at the same price offered to controlling shareholders, avoiding unfair losses when control changes. It’s basically a “jump out here at the same value” offer to small shareholders.

But beware: not all shares offer 100% Tag Along. The Companhia de Transmissão de Energia Elétrica Paulista (TRPL3), for example, offers only 80% Tag Along for ON and 0% for PN. This means PN shareholders are completely unprotected in a sale.

This is a detail many investors overlook, but it can be costly.

How to build your strategy: ON, PN, or Units?

The answer isn’t the same for everyone. It depends on what you seek:

Choose Units if: you want simplicity, diversification in one operation, and don’t mind losing flexibility in the ON/PN ratio.

Choose ON if: you have a significant stake in the company and want to influence decisions, or believe there will be important control disputes soon.

Choose PN if: your focus is on receiving consistent dividends, prefer more stable companies, and want higher priority in profit distribution.

In practice, many investors use a combination: Units for easy diversification + individual purchase of PN in companies where they want focused income + ON shares in companies where they have a long-term thesis and significant stake.

The role of preferred and common shares in your portfolio

Preferred and common shares represent different investment philosophies. ON is for those who want an active voice and believe they can influence results. PN is for those seeking cash flow with priority protection.

Units act as a bridge between the two worlds, offering flexibility at the cost of rigidity in customization.

Final checklist

Before buying any security, ask yourself:

1. Do I need voting rights in this company? (If yes, ON is better)
2. What is my investment horizon? (Short-term may require more liquidity)
3. Does this company have a history of consistent dividends? (If yes, PN makes sense)
4. What is the Tag Along percentage offered? (Always check)
5. Am I buying because I understand the business, or just because “everyone is buying”?

Common shares, preferred shares, and Units are powerful tools when used intentionally. An educated investor doesn’t choose solely by the stock’s name but by a real understanding of how each works and what rights, risks, and returns they offer.