Types of Stocks
“Research shows that owning stocks of as few as a dozen
large companies in different industries can offer you the
benefits of diversification.”
- Nancy Lloyd, author of
Simple Money Solutions
The most basic definition of a stock--part ownership in a
company--doesn’t begin to explain the myriad variances
among different types of stock. The following is a primer
to help you differentiate one type from another:
Common Stock: the basic definition that refers to
ownership in a company.
Initial Public Offering (IPO): the first time a stock
is available to be sold to the public to help generate assets
to finance the company’s growth.
Growth Stock: stock of a company that focuses on growth
through the reinvestment of dividends rather than paying them
out to shareholders.
Preferred Stock: a special category of company stock
that pays a higher dividend than common stock to its shareholders
and affords them certain voting privileges.
Convertible Stock: preferred stocks that may be converted
into common stocks.
Value Stock: also known as under-valued stocks that
trade at a lower price than the company’s reputation,
earnings outlook, or financial situation would seem to merit.
Most value stocks pay out greater profits to shareholders
in the form of dividends and place less emphasis on growth.
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