Invest in Common Stocks

Some corporations issue different types of common stocks that can be different in features. For example, Agere Company owns common stocks class A and B. Common stocks class A were offered at the Initial Public Offering (IPO) and each share deserves a vote in all the subjects in which the shareholders have a right to vote on.

Common stocks class B give them the right to issue 4 votes per each share to choose or remove directors, and besides forcing a vote per each share in any other issues that has to be voted upon.

Some companies with more than one class of common stocks has per each one of them a different dividend rate.

Types of common stocks: Although every common stock represent an ownership of interests in companies, there are many types of common stocks. As previously mentioned, blue chips pay dividends, and the growth stocks generally don’t do it.

Stocks can be classified in many categories which benefits investors because the different type of stocks vary in respect to returns, quality, steadiness in earnings and its dividends, and the relation with the varied type of risks that affect companies and markets.

Blue-chip stocks: Blue-chip stocks make reference to companies with a large background of gains and payment of sustained dividends. These steady companies have developed a leadership position particularly within there industries, and because of their great size and importance they have established records of gains and payment of dividends. The majority, if not all, companies listed in the Dow Junes Industrial Average are considered as Blue-chip companies.

However, some financially troubled former Dow stocks such as AT&T for example, have cut their dividends and have been removed from the Dow Jones industrial Average and replaced with other more solid companies.

Not all Blue-chip companies are the same. For example, Wal-Mart the largest retailing trader  pays an annual dividend of $0.60 per share. On the other hand Merck, the pharmaceutical company, pays an annual dividend of $1.52 per share; and Exxon Mobil pays an annual dividend of $1.16 per share (as of May, 2005).

Wal-Mart sales and earnings have grown quickly since its beginnings. During its first years it retained its earnings to reinvest them en its own growth. Years later it started to pay small amounts in dividends.

Wal-Mart does not fit within the typical parameters that define a Blue-chip company, because it does not pay much dividends and does not have a large background doing so.

Merck and Exxon Mobil historically also have sales and earnings in constant growth, but they have decided to pay higher percentages over their earnings as dividends and own a larger background doing so. 

Blue-chip companies are liked by investors that look for quality companies with a background of growing profits and regular dividend payouts.

These type of companies tend to be less risky during the periods of economic uncertainty due to their reliable earnings. In a bear market, prices of blue-chip company shares tend to fall less than those of companies growth stocks that don’t pay dividends.

Investors are attracted more to blue-chips stocks because they not only provide a store of wealth in anticipation of capital appreciation , but also deliver regular dividend income.