What Are Stocks?
Stocks are equity investments that represent ownership in a company. Stocks can also go by the name of “shares” or “equities” which essentially mean you are a (part) business owner. Purchasing company stock comes with certain rights which may include receiving a dividend as well as voting rights at shareholder meetings.
A portion of ownership in a corporation. The holder of a stock is entitled to the company’s earnings and is responsible for its risk for the portion of the company that each stock represents. There are two main classes of stock: common stock and preferred stock.
Common stock
Common stock is a form of corporate equity ownership, a type of security. The terms voting share and ordinary share are also used frequently in other parts of the world; “common stock” being primarily used in the United States. They are known as equity shares or ordinary shares in the UK and other Commonwealth realms
here is no unified classification of common stock. However, some companies may issue two classes of common stock. In most cases, a company will issue one class of voting shares and another class of non-voting (or with less voting power) shares. The main rationale for using dual classification is to preserve control over the company.
preferred stock.
Preferred shares are shares issued by a corporation as part of its capital structure.
- Preferred stock have a “ coupon rate ‘ – the interest rate you will be paid. This interest rate remains constant on most–but not all, preferred issues. A small number of issues have a rate that “floats,” based upon a baseline such as Libor.
- Dividends are either cumulative — meaning that dividends continue to accrue if they have been suspended, but they are not paid until the company decides to pay them after suspension — or non-cumulative. Non Cumulative means they do not continue to accrue (they are gone forever). In either case if the dividends are suspended the company is likely in deep financial trouble.
- Dividends are generally paid quarterly, although a few pay them monthly.
- Preferred shares normally carry no voting rights (unlike common shares).
- Preferred shares generally have NO maturity date (most are perpetual).
- Most Preferred Stocks have an optional redemption period in which the shares may be redeemed, at the issuer’s option, generally five years after issuance, but may be more or less.
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