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- Stock is a security issued by a joint-stock company or an issuing company
- The stock just confirms that its owner has a share in the company, even if it is very small
- There are two major stock types that you will find: common and preferred
- There are 3 main kinds of stocks: dividend, penny, and blue-chip
2 Types Of Stocks You’ll Find
Many companies offer stock market investors common and preferred stocks in order to raise capital for their business. Both types of securities are popular objects for investing money, but it is common stocks that are the keystream in the formation of financial resources of joint-stock companies (JSC). Company stocks are common and preferred. The differences are related to two main rights - to vote and receive dividends.- Common - The most common type of stock. They always give the right to vote at shareholders' meetings but do not guarantee dividends.
- Preferred - They have a predetermined dividend amount - for example, a percentage of the company's profits. Their owners can vote only if they have not received dividends for the last year.
Common Stocks
Common stock is a fixed unit of the share capital of an enterprise. Stocks of public JSCs, which are listed on stock exchanges, are one of the most important types of securities. They act as an object for sale and purchase on stock exchanges and are traditionally the most demanded assets on the market.
Stocks are profitable in the form of dividends paid in proportional parts of the company's net profit. In the long term, the yield on common stock is on average higher than the yield on other securities due to capital growth. Thus, it compensates for the higher investor risk. Common stocks are considered to be equity instruments of a lower status relative to other classes of equity securities.
Common stocks give the right to receive unfixed dividends by the holder if the relevant decision was made by the meeting of shareholders and in the overwhelming majority of cases by the supervisory board.
Dividend restrictions can be imposed by the existing legislation of the country. For example, in some countries it is prohibited to pay amounts to shareholders for those reporting periods for which the firm's net profit was not recorded, or if there is a court decision on the prohibition, including by international arbitration court organizations.
Common stockholders usually have voting rights at the shareholders' meeting. Common stocks are traded on the over-the-counter market and stock exchanges.
Market and par value of stocks are different concepts.
- The market price of a security is its rate on the stock exchange, that is, the fluctuating cost of buying and selling. The market price of the total number of shares issued by the company represents its capitalization.
- The par price is the value that is indicated on the stock itself. This figure denotes the part of the authorized capital of the company per share. Dividends are paid in proportion to this share.
Preferred Stocks
Preferred stocks are equity securities that give the investor the right to receive specified payments in the form of dividends.
In addition to guaranteed dividends, the holder of such stocks has the right to claim part of the income from the sale of property and to compensate for losses in the event of the liquidation of the enterprise. The charter may prescribe the liquidation value - this is a fixed amount or part of the nominal value that is paid to the holders of the preferred stocks upon the liquidation of the joint-stock company.
However, there is a downside to guarantee payments: preferred stocks restrict the investor in making managerial decisions. The holder of the preferred stock cannot participate in the voting of shareholders but he has the right to take part in resolving issues related to the reorganization or liquidation of the company.
Voting with preferred stocks is provided to all holders in some other cases: for example, when making decisions on the placement of new shares, for making additions to the charter, etc.
The issue of preferred stocks allows raising additional funds without increasing the number of shareholders with voting rights and without incurring debt, as is the case with the issue of bonds.
3 Main Kinds Of Stocks
We have mentioned two main types of stocks that are common and preferred. However, we should also get acquainted with “kinds”. This is different from “type”. You can have a look at the 3 main kinds of stocks that are: We will explore them thoroughly in our guide. Keep in mind that these stocks come with certain advantages and disadvantages and there is no “perfect” kind of stock to choose from.Dividend Stocks
Dividend stocks explained: You can get paid simply for owning stocks.
One of the ways to make money on securities is to buy them and then sell them when they become more expensive. But that's not all. Some companies periodically pay dividends - they distribute part of the profits among the shareholders.
The payment of dividends is a right, not an obligation of the company. Much depends on the financial position of the joint-stock company. The decision of whether to pay dividends or not and in what amount is made by the shareholders at the general meeting. They are based on the recommendations of the board of directors.
Therefore, if you want to buy stocks in order to receive dividends, you need to correctly assemble your portfolio. To assess your chances of receiving dividends, you need to look at how often the organization provides them.
An issuer that pays dividends for 10 years in a row will be more attractive than one that does it for only two years, or one that periodically pauses and then resumes payments.
In other words, it is necessary to assess the stability and adherence of the company to its principles of dividend policy. It should be borne in mind that the dividend policy is subject to change. Therefore, it is worth re-reading it periodically.
Of course, the size of the dividend matters. But this is too obvious a criterion to which you will pay attention anyway. It would be nice to take into account how it changes from year to year.