Types of Common Stocks

Common stocks represent possession or a common interest as the company’s. For instance, if you buy a thousand stocks of Microsoft Corporation you will be the owner proportionally of the company. If a company owns a hundred thousand stocks and  you buy a thousand of them, you would own 1% of the company. Returns derived from common stocks have two forms: dividends and profits over capital.

Some companies pay dividends over their common stocks, but they are not obliged to it. These companies try to keep regular payments and from time to time they increase them.

Dividends are paid to company’s stock bearers with net profits. They usually do it with money, but sometimes they pay of with properties or stocks. Exxon Mobil Corporation for example pays a dividend of  $1.16 per stock. in 4 installments of $0.29 per stock in 2005. Cisco Systems Inc. doesn’t pay dividends, in change investors buy company stocks because of its potential in earnings over capital. If you have bought this company’s stocks at $14 per stock and later you sold each one at $20 you have already earned $6 per stock. Earnings over capital are the result of raises experienced over the stocks base price at the time of sale.

Preferential stocks also represent a balanced participation in a business, and gives the owner of these an active voice in the stockholders assembly. In these assemblies you can speak in the name of other common  stockholders against earnings and assets decisions being taken in case of liquidation of the company.

Dividend rates received by the owners of preferential assets against those that have common stocks are generally fixed. Giving regular payments makes preferential assets have a similarity with bonds. Although the difference between both relies in that companies are not obligated to pay dividends over preferential stocks unless the board of directors decides to do so.