A stock represents
a little piece of a company and is bought and sold in units
called shares.
When you buy a
share of stock, you become part owner of the company. If the
company does well, either by making money now or by doing
things that other investors think will help it make money in
the future, the value of your stock may go up. If the company
does poorly - losing money, announcing job cuts or predicting
that it won't earn as much money next quarter as it did last
quarter - then your stock price may drop. Sometimes, a company
will decide to pay a dividend on its stock. A dividend is a
share of the company's earnings in the form of a cash payment.
There are two
general categories of stock. Most stockholders own common
stock in a company. These stockholders have the right to elect
the company's Board of Directors. A board of directors helps
ensure that the company's management makes decisions keeping
in mind shareholder interests. The other category of stock is
preferred stock. Like owners of common stock, stockholders
with preferred stock have an ownership stake in the company.
However, owners of preferred stock usually don't have the
right to vote for the board of directors. Also, many companies
pay a dividend on its preferred stock. Stockholders of
preferred stock get paid their dividend before holders of
common stock.
Regardless of what
type of stock a person owns, all stockholders receive a
company's annual report. This important report details the
company's financial health and may provide information on the
company's achievements during the year and plans for the
future. |