Blue chip, secondary issues, growth stock, and penny stock corporations
can issue different types of stock. The basic two types of stock are
common stock and preferred stock. Both types of stock have their pros
and cons, so before buying a corporations stock, you must decide
which one pleases you most.
A common stock is the basic stock a corporation issues. It just shows
that you own a fraction of the company. The common stocks are directly
influenced by failures and successes of the company. Common
stocks are more of a gamble. Since there is a higher chance of making profit,
common stock owners are issued their dividends or profits after the
After all the common stock has been issued, companies begin to distribute
preferred stock. The preferred stock owners are given their dividends
before the common stock owners are. Also, if the company goes out of
business, and liquidates, the preferred stock owners are paid back
the money they invested before the common stockholders are reimbursed.
The main drawback of preferred stocks is that they cannot benefit
as much from company profits because they are only paid a fixed dividend payment.
There are also classes of preferred stock. These different classes are often
labelled A,B,C and so on. The different classes usually have different market
prices, restrictions, and dividend payments.
When no one is buying a stock because of a high price, companies will often
issue a stock split. When they issue a stock split, a company gives
you more stock for your money. They simply distribute more stocks, and
decrease the price for a stock. This just allows someone who doesn't have
as much money to invest in a company. If you own stock in a company that
splits two for one, you would get twice the amount of stocks that you had
before, but each stock will have decreased in value by fifty percent. Stocks
can split into any number, but they can also reverse split which
means that the stocks double in value, but you only get to keep half the
stocks you had before. In either split, you do not lose any money. It is
just like trading in two five dollar bills for one ten dollar bill, or vice