An Overview Of Stocks
Stocks are all the stocks owned by an individual or entity through which some part of its earnings is earned. In common English, the stocks are collectively referred to as “stock”. A single share of any company’s stock represents a fractional share in proportion to its total number of outstanding shares. The value of any share, therefore, depends on the price paid for it and the prevailing stock market price at the time of issue. There are two types of stocks-known as common stocks and preferred stocks.
Common stocks are those shares which are traded on the Over-the-Counter Bulletin Board (OTCBB) and the Pink Sheets. Common stocks represent a portion of the entire marketable securities inventory. When these stocks are listed on the OTCBB, they are called the Over-The-Counter Marketable Securities (OTM). They are traded over the counter because they do not exist within the prescribed limits of limited trading to ensure their validity as genuine pieces of ownership. It is important for investors who purchase these shares to be aware that they come with no statutory rights to dividends or capital appreciation. The only right they enjoy is to receive dividends based on their performance.
Preferred stocks, on the other hand, are those assets which are owned directly by an individual shareholder. Unlike common stocks, these have one distinct advantage over them-permanently entitled to dividends. However, as with common stocks, dividends cannot be realized immediately.
There are two types of preferred stocks. The first type, called the “rights” preferred, gives the shareholders automatic rights to dividends according to their investment growth. The second type, referred to as the “dividend stocks”, gives an opportunity for the shareholders to earn dividends on their own through annual distributions. These stocks are popular with individual investors who can invest on their own and have control over their own portfolio.
Commonly, dividends are paid out by the company in two ways. First, it can be paid out to all shareholders as a distribution. This distribution is usually equal per stock shareholder. Second, the dividends are channeled in the form of earnings. A company may choose to channel dividends either to its own shareholders or to another investor who will pay it out; this is known as a “follow-on” distribution.
Since dividends allow investors to have more control over their investments, these stocks are ideal for individual investors. They allow investors to accumulate profits quickly. Another appealing thing about these stocks is that dividends are tax-free. This allows investors to minimize their taxable income. Moreover, since most of these stocks are sold on the over-the-counter market, investors do not incur any stamp duty or other tax costs when selling their stocks.