Common Share Stocks
Companies issue two types of stock to the general public. These are common stock and preference stock. Stock represents ownership in the company. Stockholders receive dividends whenever the company makes a profit and chooses to distribute it amongst the stockholders.
Common stockholders are the real owners of the company, and can govern the matters of the company. However, the company gives its preference shareholders priority in payments over common stockholders.
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Voting Rights
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Common stockholders have the right to vote and control the affairs of the company. Preference shareholders are only the partial owners of the company. They have no voting rights. Common stockholders get this right as per their ratio of shares owned. An individual who owns twice as much stock as another individual would also have twice the voting rights.
There is a downside with this. An individual who holds the majority of the company's common stock is also vested with excessive powers and decision making.
Share Prices
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Common stock is purchased by risk-taking and bold investors. The price of common stock represents the market's picture of the company's finances. If the price is steadily rising, it indicates to the investor that the company is making profits and it would be wise to invest in the company. The same is true for dividend payments. When dividend payments to common stockholders increase, the company is making increasing profits and hence the investor's money is in safe hands.
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Stock Dividends
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The dividends of common stock vary according to the profits made by the company. Companies that pay dividends usually declare them every quarter. Dividends are usually paid only if the company made a profit during that quarter. Sometimes even if the company made profits, the management may decide not to declare dividends and plow back the money into the business.
Every time a company declares dividends, it first pays its preference shareholders and then the common stockholders share whatever money remains.
Stock Analysis
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The price of common stock tends to fluctuate with movements in the stock market. When the general stock market conditions are good and the company is on the progress path, its stock price tends to appreciate. When market conditions are bad, there is usually a decline in the share price.
An individual who is planning to invest her money in a company must conduct thorough research before doing so. She must contrast the present and past performance of the company and contrast the performance of this company with similar firms in the same industry.
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