Investments in corporations are called securities. Bonds and stocks are the most favorites among investors.
Corporate bonds are evidences of corporate debt to the bondholder. Stocks are evidences of ownership or equity.
Investors buy stock hoping that it will yield income from dividends. Shares of widely held companies are traded on STOCK MARKETS.
Stockholding is popular because it represents an ownership of capital that can be transferred easily by means of organized trading in the stock markets.
There are two classes of stock: preferred and common. Owners of preferred stock are entitled to a fixed or predetermined dividend before any common
stock dividends can be paid. If profits are too low in any given period to cover all or part of a preferred dividend, the unpaid amount may be accumulated
as a claim against future earnings. Preferred stock also has first claim if a company is liquidated and the proceeds divided among its shareholders.
Common stock carries with it all claims to a company's assets and earnings that have not been assigned to preferred stock or to corporate debt.
Once preferred stock dividends have been met, any remaining profits are available for distribution to the common stock shareholders.
Because there is no limit on the amount of dividends a common stock may receive, its market value tends to reflect assumptions made by investors as a
group about the company's ability to increase earnings and thus pay higher dividends in the future. Although common stock offers less security of income
and generally lower current yields, it is much more likely to increase in market value than preferred stock.
