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Common Stocks
A stock is a type of investment security that represents ownership in a company. Companies issue shares of stock as their primary means of raising capital. The value of these shares will normally fluctuate depending on the company's performance. If the company performs well or has the prospect of performing well, the stock value will generally go up. This is one way to earn a return on your investment. There is a risk that the company will not perform in line with expectations; therefore the value of the stock could go down, causing the shareholder to lose money on the investment.
The other way to earn a return from investing in stocks is if the company pays dividends from its profits. Dividends can be distributed in three ways: cash dividends - a check paid to the shareholder representing his or her share of the company's profits; stock dividends - the company issues shares of common stock as a dividend; and stock dividends where the company distributes stock in a subsidiary company. Companies that typically pay dividends have good established income flow and little to moderate opportunity for growth.
Highlights
- Stocks have traditionally offered higher returns than any other type of long term investment.
- Annual dividends from some companies that pay a portion of their earnings back to their shareholders.
- Ownership benefits include: voting rights, preemptive rights and dividend rights.
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