What is Stock?
A stock, also known as a share or equity, represents a unit of ownership in a business.
When a business wants to raise money, it can issue stocks and sell them to investors. Imagine you split the business into equal pieces. Now each piece represents a share. When you buy a share, you purchase a small part of the business, and as a shareholder, you claim a portion of the assets and earnings.
Stocks for listed companies are traded on stock exchanges, such as the New York Stock Exchange (NYSE) and NASDAQ. Individuals and investors trade these stocks every day.
Change your Mindset
Stock = Ownership of business
Changing the mindset around stock investing is important. When investors buy stocks, they don’t think about becoming owners of the company. The sad part is some do not even know what the company does. They are just interested in stock price rather than the underlying value of the business.
You need to tell your mind that you are becoming an owner of the company, and you should do your due diligence before buying this business.
Types of stocks –
Common Stock
Common stock gives shareholders voting rights and the potential to earn profits through dividends and capital appreciation.
Preferred Stock.
Preferred stock typically doesn’t come with voting rights, but it has a higher claim on the company’s assets and earnings and often pays a fixed dividend.
Difference between Common stock and Preferred stock
Common Stocks
Preferred Stocks
Unlimited upside of capital appreciation
Fixed dividend income, pre-determined rates
Voting rights
No Voting rights
More Volatile
Less Volatile
Paid after Preferred
Paid first, even company incurs losses
High Potential connected to company growth
Dont grow as the company grows
What is a Dividend?
A dividend is profits shared by a company to its owners, usually in the form of cash or additional shares of stock.
Here are some key points about dividends:
- Purpose: To distribute their earnings to their shareholders.
- Timing: Dividends are usually paid on a regular schedule, such as quarterly or annually.
- Amount: The amount of the dividend is determined by the company’s board of directors, also called cash dividends per share.
- Taxation: Dividends are taxed as income, so shareholders must pay taxes on the dividends they receive.
Dividend Yield = (Cash Dividend per share / Market Price per share) * 100
Why do some companies pay dividend while others do not?
A dividend, as discussed above, is part of the profit distributed to shareholders. If this part is retained back into business for re-investment purposes, then :
- Rate of growth of the company can accelerate
- Company need not seek loans or debt because its fund requirement is being internally fulfilled.
- Its share price can also increase.
A stock, also known as a share or equity, represents a unit of ownership in a business.
When a business wants to raise money, it can issue stocks and sell them to investors. Imagine you split the business into equal pieces. Now each piece represents a share. When you buy a share, you purchase a small part of the business, and as a shareholder, you claim a portion of the assets and earnings.
Stocks for listed companies are traded on stock exchanges, such as the New York Stock Exchange (NYSE) and NASDAQ. Individuals and investors trade these stocks every day.
Change your Mindset
Stock = Ownership of business
Changing the mindset around stock investing is important. When investors buy stocks, they don’t think about becoming owners of the company. The sad part is some do not even know what the company does. They are just interested in stock price rather than the underlying value of the business.
You need to tell your mind that you are becoming an owner of the company, and you should do your due diligence before buying this business.
Types of stocks –
Common Stock
Common stock gives shareholders voting rights and the potential to earn profits through dividends and capital appreciation.
Preferred Stock.
Preferred stock typically doesn’t come with voting rights, but it has a higher claim on the company’s assets and earnings and often pays a fixed dividend.
Difference between Common stock and Preferred stock
| Common Stocks | Preferred Stocks |
| Unlimited upside of capital appreciation | Fixed dividend income, pre-determined rates |
| Voting rights | No Voting rights |
| More Volatile | Less Volatile |
| Paid after Preferred | Paid first, even company incurs losses |
| High Potential connected to company growth | Dont grow as the company grows |
What is a Dividend?
A dividend is profits shared by a company to its owners, usually in the form of cash or additional shares of stock.
Here are some key points about dividends:
- Purpose: To distribute their earnings to their shareholders.
- Timing: Dividends are usually paid on a regular schedule, such as quarterly or annually.
- Amount: The amount of the dividend is determined by the company’s board of directors, also called cash dividends per share.
- Taxation: Dividends are taxed as income, so shareholders must pay taxes on the dividends they receive.
Dividend Yield = (Cash Dividend per share / Market Price per share) * 100
Why do some companies pay dividend while others do not?
A dividend, as discussed above, is part of the profit distributed to shareholders. If this part is retained back into business for re-investment purposes, then :
- Rate of growth of the company can accelerate
- Company need not seek loans or debt because its fund requirement is being internally fulfilled.
- Its share price can also increase.