What are stocks and shares
Many people fall in to the misconception that stocks and shares are different things but they are just different ways of saying the same thing (stocks generally used in America, shares used in England). A stock or share is basically just a stake in a companies capital, ie if you have own a share you own basically own a tiny bit of that company.
What is a dividend
A dividend is nothing more than a share in the underlying profit's of a company. Most companies pay dividends quarterly (four times a year).Its generally the larger especially blue chips stocks which pay dividends. The choice of buying and owning a stock that pays a dividend is up to the individual investor. There are both positive and negative aspects that come with receiving dividend. A company offering dividends is likely to be a larger stable one offering a lot less potential for growth.
Share Types
When considering to purchase stocks and shares it is handy to know that there is generally two different types of shares that you can purchase. The first is known as preference shares/preferred stock. Preference shares provide a specific dividend that is paid before any dividends are paid to common stock holders. They also take precedence over common stock in the event of a liquidation. Disadvantages are that preference shares do not enjoy any of the voting rights of common stockholders also the dividend never fluctuates even in times of prosperity.
The second type are known as ordinary shares/common stock. They are the most common form of share. An ordinary share gives the right to its owner to vote at the annual general meetings of the company. Since the profits of any company can vary from year to year, so can the dividends paid to ordinary shareholders. In bad years, dividends may be nothing whereas in good years they may be substantial.
ADR's (American Depositary Receipts)
Put simply an American Depositary Receipt (or ADR) represents the shares of a foreign company trading on US financial markets. The stocks of a variety of non-US companies trades on US exchanges through the use of ADRs. They enable US investors to buy shares in foreign companies without having to undertake cross-border transactions. An investment bank will generally buy the shares on the foreign exchange and then apply to list them on the U.S market's.
Share Status
When you are evaluating shares potentially to invest in, it is important to understand that different shares have different status'. Generally there are two different types and they are blue chips and penny share's. Blue chip shares will generally have proven track record's, as well as having a track record of proven dividend payment's. Penny shares are generally new companies that generally have recently been bought to the market. As a result they are generally smaller companies and as a result have a higher element of risk.
These are the 5 main elements that you need to be aware of when you are looking at evaluating potential investment opportunities with reference to individual stocks and shares.
Oliver Gillies is a Trainee Sales Trader who has been working for a firm of stockbrokers in the City Of London for the last year. He also trades his own successful portfolio (11.5% in the last two months June-August).
