Stocks tend to develop a unique sense of character over time, composed of features particular to specific businesses. They are divided into different groups and classified based on a number of characteristics.
What are Stocks?
A stock is a certificate of ownership over a portion of the company. There are many types of stocks.
A common stock, as you can tell by its name, is one of the most common types in the market. Each stock you possess provides you one voting right in the company. The vote is used to vote for the officers of the company and sometimes a few other pertinent company issues.
The common stock is the least secure option of investment in the stock market. Should the company experience problems that become public news, you may not earn your dividend from it, then being paid last after all other people involved with the company are first paid.
On the other hand, as long as there are no major problems, common stock has the potential to be the most profitable.
An alternative to common stock is preferred stock, which offers a fixed payment but no voting rights in the company. As a shareholder, you receive your dividends before payments are made to holders of common stock.
It is possible that the dividends of common stocks are higher than those of the preferred stock, but depends on corporate decisions and performance. The company also has the option to purchase the stocks back from the shareholders.
In addition to these, there are also different classes of stocks. Such stocks have specifically-defined voting rights in the company, based on the discretion of the company.
The company allocates votes in this instance so that some groups of shareholders have more votes per share of stock while others have less of a vote.
What is a Dividend?
A dividend is a form of payout extended to shareholders based on the number of stocks they own. These are paid regardless of the company’s performance, but the actual amount of the dividend payment is determined by company policy.
Stocks that trade for less than a dollar are known as penny stocks. One reason they tend to be so cheap is because they are new or without an established company reputation.
Though it may seem counter-intuitive, penny stocks are actually a very risky form of stock. They could wind up being very successful for you or potentially lose a lot of money.
Blue Chip Stocks
This term applies to stocks in high value companies such as GE, IBM, Apple, HP or a number of other major companies. The price of these stocks are generally higher, but tend to be relatively safe investments over time.
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